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IN RE U.S. GRANT HOTEL ASSOCS. SECS. LITIG.

January 31, 1990

In re U.S. GRANT HOTEL ASSOCIATES, LTD. SECURITIES LITIGATION. This document relates to: Lubin
v.
Sybedon


William B. Enright, United States District Judge.


The opinion of the court was delivered by: ENRIGHT

WILLIAM B. ENRIGHT, UNITED DISTRICT JUDGE

 INTRODUCTION

 This is a proposed class action for damages, injunctive relief, rescission, attorneys' fees and other relief brought by investor Robert Lubin and various other intervenors and proposed class representatives against a wide array of defendants who were involved in the restoration of the U.S. Grant Hotel ("Hotel") in San Diego. Plaintiffs allege generally that through material omissions defendants fraudulently overstated the prospects for the Hotel's economic success and at the same time failed to disclose the severe financial straits into which the restoration project was falling.

 For a more complete description of the facts of this case, see this court's June 1988 Memorandum Decision. Lubin v. Sybedon, 688 F. Supp. 1425 (S.D. Cal. 1988) (hereinafter "June Order"). In its June Order, this court dismissed certain causes of action against specific defendants and deferred a determination on class certification for a fuller hearing on the issue of adequacy of representation. Lubin, the original proposed class representative, was given leave to amend his first amended complaint.

 Plaintiffs have brought forth a second amended complaint in which they reassert all previous claims that were upheld or merely dismissed without prejudice. Plaintiffs have also resubmitted a motion for class certification and presented numerous potential class representatives. Finally, plaintiffs have added two new claims for relief: a claim under section 29 of the 1934 Securities and Exchange Act and a RICO claim.

 At a hearing held September 26, 1988, various defendants moved to disqualify lead counsel, to dismiss parts of this action, to grant partial summary judgment, and to grant sanctions. Finally, defendants also opposed certification of the class.

 Due to the progress of settlement negotiations between various defendants and the representatives of the proposed class, this court, on November 10, 1988, entered an Order deferring resolution of the motions pending from the September 26th hearing. The November Order provided that the court would "defer the resolution of the issues currently pending until it receives notice from the magistrates presiding over the instant pretrial proceedings that the various matters have been resolved and other aspects of the pretrial proceedings have been completed."

 The court has received notice from the magistrates presiding over the instant pretrial proceedings that resolution of the pending motions is now appropriate. In the intervening period between the September hearing and the notice from the magistrates, settlement agreements were approved by this court which released six defendants from this action. Accordingly, three of the pending motions are now moot: first, the motion to disqualify lead counsel which was brought by three of the settling defendants as a group; second, the motion to dismiss claims brought under § 12(2) of the 1933 Securities Act which was brought by one of the former defendants; and third, the motion to dismiss claims brought under § 10(b) of the 1934 Securities and Exchange Act which was brought by two of the former defendants.

 The defendants remaining in this case are the following individuals and entities:

 
1. Sybedon Corporation ("Sybedon") - general partner of U.S. Grant Hotel Associates, Ltd. ("Grant Associates"); co-issuer of limited partnership interests purchased by investors such as Lubin;
 
2. Edwin Glickman - Executive vice-president and director of Sybedon;
 
3. Bertram Lewis - Chairman and director of Sybedon;
 
4. Mitchell Davis - senior vice-president and director of Sybedon (Note: defendants 1-4 are referred to as "Sybedon Defendants");
 
5. Prudential-Bache Securities - the underwriter-broker; also marketed the securities;
 
6. Prudential-Bache Properties (together with #5 referred to as "Prudential-Bache") - the property manager; purportedly the sole "Class B" limited partner of Grant Associates (although plaintiffs allege it to be a general partner);
 
7. Pannell, Kerr & Forster ("Pannell") - the accountants who prepared projections for the Hotel;
 
8. Wilrock Appraisal & Consulting, Inc. ("Wilrock") - the appraiser of the Hotel;
 
9. National Union Fire Insurance ("National Union") - the corporate surety who insured promissory notes of limited partners.

 The original complaint in this action was filed on December 23, 1987. An amended complaint was then filed on January 4, 1988. Plaintiffs filed the Second Amended Complaint on August 8, 1988. The Second Amended Complaint sets forth the following causes of action against the remaining defendants:

 
A. Violations of sections 12(2) and 15 of the Securities Act of 1933 ("1933 Act"), 15 U.S.C. § 771(2) -- against the Sybedon Defendants, Prudential-Bache Securities, and Pannell (the first cause of action);
 
B. primary liability for violations of Section 10(b) of the 1934 Securities Exchange Act ("1934 Act"), 15 U.S.C. § 78j(b) and Rule 10b-5, 17 C.F.R. 240.10b-5 -- against the Sybedon Defendants, Prudential-Bache Securities, and Pannell (the second cause of action);
 
C. secondary liability for violations of section 10(b) and Rule 10b-5 -- against all remaining defendants (the third cause of action);
 
D. violations of section 10(b) and Rule 10b-5 -- against National Union (the fourth cause of action);
 
E. rescission under section 29 of the 1934 Act -- against National Union (the fifth cause of action);
 
F. violations of California Corporations Code section 25504.2 -- against Pannell, and Wilrock (the sixth cause of action);
 
G. violations of California Corporations Code sections 25401, 25501 and 25504 -- against the Sybedon Defendants and Prudential-Bache Securities (the seventh cause of action);
 
H. violations of California Corporations Code section 25504.1 -- against all remaining defendants (the eighth cause of action);
 
I. fraud and deceit, in violation of California Civil Code sections 1710(1) and 1710(3) -- against all remaining defendants (ninth cause of action);
 
J. negligence, misrepresentations and omissions, in violation of California Civil Code section 1710(3) -- against all remaining defendants (the tenth cause of action);
 
K. breach of fiduciary duty -- against Sybedon, Prudential-Bache Securities, and Pannell (the eleventh cause of action);
 
M. breach of fiduciary duty and breach of a covenant of good faith and fair dealing -- against National Union (the thirteen cause of action);
 
N. professional malpractice (accounting) -- against Pannell (the fourteenth cause of action);
 
O. professional negligence (appraising) -- against Wilrock (the sixteenth cause of action);
 
P. accounting -- (the eighteenth cause of action);
 
Q. RICO -- against the Sybedon Defendants (the nineteenth cause of action);

 Further factual background will be presented as it relates to the discussion of the motions, below.

 DISCUSSION

 I.

 MOTION FOR CLASS CERTIFICATION

 Plaintiffs have identified nineteen parties as class representatives. One is Lubin, the original proposed class representative. Eleven of the other identified plaintiffs were intervenors at the previous stage in the litigation. The final seven are new to this cause of action.

 In order to qualify for class certification, plaintiffs must first show that their putative class meets all four requirements of Federal Rule of Civil Procedure 23(a). Rule 23(a) provides:

 
One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.

 Fed. R. Civ. P. 23(a).

 In its June Order, this court deferred its ruling on class certification to permit a fuller hearing on the issue of adequacy of representation. The court stated that "if adequacy is shown, then the class will be certified as described above." Lubin, 688 F. Supp. at 1464. The court therefore found that the requirements of 23(a) (1-3) had been met. The court now finds that with the addition of the eighteen new proposed class representatives, adequacy of representation has been shown. Therefore, the class should be certified.

 II.

 MOTIONS TO ...


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