SCAN

SHORT FORM ORDER

SUPREME COURT STATE OF NEW YORKCOUNTY OF NASSAU

PRESENT:HON. lRAB. WARSHAWSKY,

Justice.TRIAL/IAS PART 16

MARC A. PERGAMENT, the Chapter 7 bankptcytrstee for the Estate of AMERICAN BIOGENETICSCIENCES , INC.

PlaintiffINDEX NO. : 016425/2001MOTION DATE: 03/18/2005MOTION SEQUENCE: 010

- against -

ALFRED J. ROACH, RONALD I. HELLERDAVID S. NAGELBERG, KENNETH J.KOOCK, MATIN H. MEYERSON, M.

MEYERSON & CO. , INC. , LAWRNCEKUPFERBERG, in his individual capacity and astrustee of the RACHEL BETH HELLER 1997TRUST and the EVAN TODD HELLER 1997TRUST, DONEHEW FUND LIMITEDPARTNERSHIP , ROBERT DONEHEW, R. DAVEGARWOOD, DAVID BIGGS, TYLER RUNELSKEVIN CHAROS , ANTHONY CHAROSDELAWARE CHARTER GUARANTY ANDTRUST COMPANY, in its capacity as trustee of theRONALD HELLER IRA, DAVIS S. NAGELBERGIRAand the MARTIN H. MEYERSON IRA, JACQUELINEKNAPP, JANICE HALL-NESSES , JOHN DAVIESINEST, INC. and PETER W. JANSSEN

Defendants.

The following papers read on this motion:

Notice of Motion, Defendants ' Statement Pursuant to Rule 19a , Afdavit & Exhibits Anexed..................... 1

Defendants ' Memorandum of Law in Support of Motion for Sumary Judgment......................................... 2

Affdavit of Matthew E. Miler in Opposition & Exhibits Anexed................................................................ 3

Memorandum in Opposition to Motion for Sumry Judgment.................................................................... 4

Affidavit of Reuben L. Sushmn & Exhibit Anexed...................................................................................... Reply Affdavit in Further Support of Motion for Summry Judgment & Exhibits Anexed.......................... 6

Reply Memorandum of Law in Support of Motion for Sumary Judgment................................................... 7

Motion pursuant to CPLR 3212 by the defendants M.H. Meyerson & Co. , Inc.

Ronald I. Heller, David S. Nagelberg, Kenneth J. Koock, Martin H. Meyerson, Lawrence

Kupferberg, Kevin Charos, Tyler Runnels and Anthony Charos , for summar judgment

dismissing the complaint insofar as asserted against them, is granted.

The plaintiff Marc A. Pergament, is Chapter 7 Bankptcy Trustee for American

Biogenic Sciences , Inc.

, ("

ABS"J, a now bankpt

, "

developmental stage

biopharmaceutical company which commercially researched and marketed certain

cardiovascular and neurobiology products (Cmplt. 1).

As a "developmental" corporation which had yet to successfully market its

products or generate a profit, ABS was continually in need of money to remain financially

viable (T. Roach Dep. , 116).

Since ABS lacked the resources to adequately collateralize traditional asset-based

financing, in May of 1998 it issued so-called "floorless convertible debentues " after

which its stock value began to precipitously decline (Defs ' 19(aJ Statement 10).

In order to stem the rapid decline in its stock, and because ABS faced potential

NASDAQ "delisting" based on its diminished net worth, ABS' directors concluded that it

would be necessary to purchase the outstanding convertible debentures - a strategy

requiring significant capital, which ABS then did not possess.

Some three months afer the debentue offering, in August of 1998 , ABS retained

codefendant M.H. Meyerson & Co, Inc. ("MHM"J as a financial advisor.

More particularly, on August 13 , 1998 ABS and MHM

, "

a full service financial

institution " and entered into a Financial Advisory Agreement ("FAA") (Cmplt. ~ 26),

pursuant to which MHM - as an " independent contractor" - agreed to "provide such

regular and customary financial consulting advice as is reasonably requested by * * *

(ABS) (Agreement ~~ 2 , 10; Pomerantz Aff. ~ 7). The agreement furher provides that

MHM "shall have no authority to act for, represent or bind * * * (ABS) * * * except as

may be expressly agreed to by * * * ("ABS") in writing * * *" (Agreement ~ 10).

Ultimately, and in order to generate the capital necessary to successfully complete

the debenture purchase, ABS opted to pursue a "private placement" offering, consisting of

a "straight equity deal" in which shares of ABS common stock would be offered for sale

at a stipulated price. Alternative sources of generating income were considered, but were

not realistic or viable options in light of ABS' financial condition and lack of assets

(Schoell Dep. , 55-56).

The defendants contend that at some point in October of 1998 , ABS Chairman of

the Board Alfred Roach and ABS in-house counsel Leonard Suroff contacted

respectively, codefendants Ronald I. Heller (an MHM employee) and Mr. Meyerson of

MHM

, "'

independently as a possible source of financing ' and not as an ABS ' financial

advisor

' "

(Pomeranz Aff. ~ 31; SuroffDep. , at 238-239; Rule 19(a) Statement ~ 19).

Heller ultimately assembled a group of investors, which included friends , relatives and

business associates , who collectively agreed to pUrchase $1.7 milion worth of ABS stock

pursuant to the private placement offering (Heller Dep.. 71-72; Rule 19(a) Statement

18- 19).

According to Suroff, the private placement method of proceeding was already

agreed upon before ABS approached Heller (Suroff Dep. , 222-223) - with the price of

the stock constituting the only outstanding issue ofimport to be negotiated (Suroff Dep.

225; Defs ' 19(a) Statement ~~ 16- 17).

Suroff furher testified in this respect that Alfred Roach himself set the price of

per share, and that while Heller pressed for a lower price, Roach rebuffed his requests

upon the advice of counsel (Suroff Dep. , at 226; 19(a) Statement ~~ 16- 17; Roach Dep.

63). Further, ABS chief financial officer Joseph Schoell furher testified that although

inquires were made , he was unaware of any alternative or readily available financing on

terms superior than those of the private placement arrangement which ABS had decided

to pursue (Scheoll Dep. , 68- , 95).

Ultimately, Myerson and Heller, as well as codefendants David S. Nagelberg,

Kenneth J. Koock, Lawrence Kupferberg and Anthony Charos, purchased ABS stock at

the prescribed "straight equity" price of25 per share - a price slightly in excess of the

per share traded value of the stock at the time (Cmplt. , ~ 33; 19(a) Statement ~ 22).

The private placement was completed in late 1998 , and some 8 milion shares of

common stock were sold for the sum of $2.7 milion. It is undisputed that ABS

subsequently utilzed the funding generated by the private placement to successfully

repurchase the debentues (Cmplt. ~~ 30-31), after which its stock values increased

(Cmplt. ~~ 30- , ~ 36).

Notably, codefendants Ronald I. Heller, Martin H. Meyerson, Lawrence

Kupferberg, Kenneth J. Koock, and Anthony Charos , who were all employees ofMHM in

1998 , purchased ABS common stock in accord with the terms of a "Purchase and

Investment Agreement " which permitted buyers to later sell the stock pursuant to certain

conditions 19(a) Statement ~ 25), upon the earlier of the registration statement being

declared effective by the SEC or the elapse of one year. Alfred Roach also purchased

some 4 milion shares. Codefendants Tyler Runnels and Kevin Charos were not MHM

employees and had no relationship with ABS apart from their execution of stock purchase

agreements (Defs ' 19(a) Statement ~ 40).

The moving defendants later sold their ABS stock (some 6 milion shares) and

according to the plaintiff, they ultimately made a $1.85 milion dollar (125%) profit on

their initial investment (Miler, Aff. ~ 106; Cmplt. , ~~ 37-38, 44).

Subsequently, in October of2001 , an ABS shareholder commenced the

predecessor to the instant action - a shareholder derivative action in which ABS was

named as a nominal defendant (Miler Aff. , ~~ 107- 108).

In September of 2002 , ABS fied for protection under Chapter 7 of the United

States Bankrptcy Code (Miler Aff. , ~~ 107- 108) and in October of2003 , the plaintiff

Marc A. Pergament, as Chapter 7 Bankptcy Trustee, was substituted for the ABS

shareholder as the plaintiff in the within action.

Pergament thereafter fied a "first amended complaint" containing four separate

causes of action sounding in breach of fiduciary duty, breach of contract and unjust

enrichment/constructive trust (Cmplt. , ~~ 49-69).

In support of his claims, the plaintiff contends in substance, that the October, 1998

private placement was "conceived of and executed by, the MHM defendants " whom the

plaintiff describes as " insiders" who affirmatively advised ABS in connection with the

private placement offering (Cmplt. , ~~ 32- , 42).

Moreover, according to the plaintiff, MHM , functioned as ABS de facto

placement agent" or underwriter with respect to the disputed private placement and

thereby owed a fiduciar duty to ABS. The plaintiff furher theorizes that placement, as

conducted here, permitted the defendants to purchase the stock at a "grossly inadequate

and "fundamentally unfair" price (25~), resell it when the price rebounded - as they knew

it would upon completion of the debenture repurchase - and then pocket the profits which

should have accrued to the ABS and its shareholders (Cmplt. , ~~ 45-48).

Upon the instant notice, the MHM defendants move for summary judgment

dismissing the complaint, arguing in sum that: (1) neither the FAA nor any other

component of their relationship with ABS gave rise to a fiduciary duty of care or breach

of contract; (2) no advice was , in any event, ever requested by ABS under the FAA with

respect to the private placement and no financial services were provided; and (3) the

plaintiff does not possess a viable claim predicted upon the equitable theories of unjust

enrichment and constrctive trust. The Cour agrees.

Generally speaking '" ( a) fiduciary relation exists between two persons when one

of them is under a duty to act for or to give advice for the benefit of another

upon matters within the scope of the relation

'" (

Mandelbart v. Devon Stores , 132 AD2d

162 , 168 quoting from Restatement (Second) of Torts, 874 (comment a) see generally

Northeast General Corp. v. Wellington Advertising. Inc , 82 NY2d 158 , 162 (1993);

Diamond v Oreamuno. 24 NY2d 494 497-498 (1969); Reuben H. Donnelley C01:. v.

Mark I Marketing C01:. , 893 FSupp. 285 , 289(S. 1995J).

However

, "

(b)efore courts can infer and superimpose a duty of the finest loyalty,

the contract and relationship of the parties must be plumbed" ortheast General C01:. v.

Wellngton Advertising. Inc supra, at 162 (1993)). "If the parties find themselves or

place themselves in the mileu of the 'workaday ' mundane marketplace , and if they do not

create their own relationship of higher trust, courts should not ordinarily transport them to

the higher realm of relationship and fashion the stricter duty for them ortheast General

C01:. v. Wellngton Advertising. Inc supra, at 162; Fyrdman & Co. v. Credit Suisse First

Boston C01: , 272 AD2d 236 , 237see also Meinhard v. Salmon, 249 NY 458 464

(1928)).

Moreover, where claims alleging the purported breach of a fiduciary duty merely

assert a "conventional business relationship" or depicts "an arm s length business

transaction without special circumstances" no fiduciar duty wil arise (V. Ponte and

Sons. Inc. v. American Fibers Intern , 222 AD2d 271 272; WIT Holding Corp. v. Klein

282 AD2d 527 , 529; CIBC Ban Trust Co. (Cayman) Ltd. v.Credit Lyonnais. 270

AD2d 138 , 139 see also SNS Bank. N.V. v. Citbank. N. 7 AD3d 352 355; Cuomo V.

Mahopac Nat. Bank, 5 AD3d 621).

Although ABS retained MHM as its financial advisor - as limited by the terms

the FAA - the contractual relationship forged by the parties ' written agreement neither

contains "cognizable fiduciary terms" nor otherwise elevates the relationship created upon

the facts presented, to one evincing a "higher trust" ortheast General Corp. v.

Wellngton Advertising. Inc supra, at 162). Rather, the FAA characterizes MHM as an

independent contractor;" requires an affirmative request for advice by ABS; and further

dilutes the exclusivity of the arrangement by expressly reserving MHM' s right to enter

into agreements with, and provide advice to, other, potentially competing clients

(Agreement ~~ 2 , 7, 10). Nor does the FAA refer to any particular or specific transaction

in respect to which advice was to be supplied or assistance rendered. In sum, if "these

sophisticated parties wanted a fiduciary-like relationship" they did not "spell( ) it out in

their agreements

" (

Trump v. Corcoran Group. Inc , 240 AD2d 159).

The Cour notes that the deposition testimony the plaintiff relies on to support his

claim that financial advice was affirmatively sought by ABS, or that MHM acted as

placement agent, does not support his claims (Miler Aff. ~~ 43; Suroff Dep. , 223-227;

238-239).

A careful review of the cited testimony in its proper context, indicates that neither

Timothy Roach nor Leonard Suroff testified that ABS affirmatively requested advice

pursuant to the FAA relating to the private placement.

Rather, Suroff testified that Heller and Meryerson were independently consulted as

a source of possible financing for the placement, and that they were not approached as

advisors within the meaning of the FAA (SuroffDep. , 223-227; 238-239) - claims

buttressed by the absence of any documents or correspondence memorializing a

consultation request or otherwise evidencing MHM' s purorted status as ABS' placement

agent or underwriter (T. Roach Dep. , 125). Nor was any fee paid to ABS for alleged

services rendered in connection with the private placement (Suroff Dep. , 226-227; 19(a)

Statement ~ 18).

Moreover, while Timothy Roach speculated and assumed that ABS must have

been talking to its financial advisors with respect to the placement (T. Roach Dep. , 65

68), he later conceded that he was not the "right person" to ask about this issue; that he

never actually spoke to anyone at MHM about the question; and that he did not recall

speaking to anyone else at ABS concerning discussions they may have had with MHM

concerning financial services or advice (T. Roach Dep. , 120- 121). Accordingly, the

record supports the defendants ' contention that advice was never affirmatively sought by

ABS in accord with the terms of the FAA.

Nor do the paries ' submissions otherwise support a finding that a fiduciary duty

arose between the movants and ABS.

While contract terms are not necessarily determinative since courts wil look

(b)eyond what may be memorialized in writing" to see "whether a pary reposed

confidence in another and reasonably relied on the other s superior expertise or

knowledge

" (

Wiener v. Lazard Freres & Co. , 241 AD2d 114, 122), the constellation of

factors presented, falsi short of otherwise establishing such a relationship.

Here, the record supports the conclusion that - whether misguided or not - ABS

itself elected to generate funding through non-traditional, risk intensive means (the

floorless" convertible debentures), and that the ensuing volatiltyand downward spiral of

its stock precipitated ABS' independent decision to retire the debentures through the

private placement (SuroffDep. , 222-223).

Thereafter, and in light of its inabilty to secure asset-based or alternative funding

(Schoell Dep. , 13- , 17- 18; 55), ABS chairman Alfred Roach approached Heller and

Meryerson, who - together with other investors they later privately assembled - offered to

acquire a significant portion ($1.7 milion) of the placement at a price set by Roach

(Heller Dep. , 99- 100; Suroff Dep. , 128- 129).

The Cour disagrees that this factual predicate raises a triable issue of fact with

respect to whether ABS "reposed confidence in * * * (movants) and reasonably relied on

* * * (their) superior expertise or knowledge" in relation to the transaction (Wiener v.

Lazard Freres & Co supra, at 122; Societe Nationale D'Exploitation Industrielle Des

Tabacs Et Allumettes v. Salomon Bros. Intern. Ltd. , 251 AD2d 137 , 138). To the

contrary, the record supports the conclusion that the agreement among the paries -

including the above-market, 25~ per share price - was reached after negotiation "between

sophisticated, counseled business people negotiating at arm s length' " (South Road

Associates. LLC v. Intern. Business, 4 NY3d 272 (2005), quoting from Vermont Teddy

Bear Co.. Inc. v. 538 Madison Realty Co.. 1 NY3d 470 475 (2004), and Matter of

Wallace v. 600 Parners Co , 86 NY2d 543 548 (1995) see WIT Holding C01:. v. Klein

supra) . In fact, the evidence indicates that Alfred Roach was a businessman with some 40

years ' of experience in various management positions and that both he and ABS'

management possessed significant experience in raising capital through securities

offerings. More particularly, the parties ' submissions establish that there had been an

initial, ABS public offering and various private placements involving convertible

debentues which preceded the subject, 1998 placement (A. Roach Dep. , 83-86; Suroff

Dep. , 38). Further, Roach, through another company he founded (TII Network

Technologies), similarly participated in an initial public offering and subsequent private

placements thereafter.

Although Meyerson and Heller participated in the negotiations which preceded the

placement, the evidence establishes that they functioned not as ABS' financial advisor or

in some amorphously defined fiduciary capacity, but rather, as investors to whom ABS

tued in light of its inabilty to secure traditional, alternative. Indeed, the more

persuasive and logical inference to be drawn, is that the MHM defendants were

negotiating for, and acting on behalf of, the various investors whom Mr. Heller had

assembled in order to generate the $1.7 milion in promised stock purchases. It bears

noting that the FAA expressly provides that MHM "shall have no authority to act for

represent or bind * * * (ABS) * * * except as may be expressly agreed to by * * *

ABS") in writing * * *" (Agreement ~ 10). Additionally, the fact that ABS Chairman

Roach and Heller had maintained a prior commercial and/or personal relationship, adds

nothing of material import to the relevant factual analysis and does not demonstrate the

existence of a fiduciary duty (see. WIT Holding Corp. v. Klein, supra

Lastly, the opinion of the plaintiff s financial expert to the effect that the private

placement was unfair and that alternative equity and/or debt placement scenarios existed

is contrar to the record evidence concerning, inter alia ABS' strained financial status

and its realistic prospects for securing financing and/or attracting purchasers wiling to

acquire its stock (Q.. David v. County of Suffolk, 1 NY3d 525 526 (2003); Diaz v. New

York Downtown Hosp , 99 NY2d 542 , 544 (2002); Amona v. Orange and Rockland

Utilties. Inc , 792 NYS2d 360 (2 Dept. 2005)).

Furher, the plaintiffs theory is conjectual, and is based upon the hindsight

assumption that, among other things, ABS common stock - then trading at 19~ cents per

share - would have constituted an attactive investment at an initial "benchmark" price of

$1.50 and a subsequently discounted price of some 68~ per share, notwithstanding the

stock' s volatilty and precipitous downward movement prior to October of 1998 (R.

Sushman Aff. ~ 12-15). Nor does the record support the conclusion that there was any

guarantee of profit or that investment in the placement was not fraught with significant

risk. It is notable in the respect that ABS' registration statement was not declared

effective by the SEC until some eight months after it was fied, during which time ABS

continued to struggle financially and face potential NASDAQ deli sting- a occurence

described by ABS' vice- president for financial affairs as likely to result in bankptcy,

absent a "major merger transaction or another financing" (Defs ' Exh.

, "

In short, the "record lacks any evidence that the * * * (defendants) performed * * *

services that could give rise to * * * fiduciary duties owed to * * * (ABSJ"(Citadel

Management Co.. Inc. v. Macklowe Organization, 286 AD2d 572). Those branches of

the motion which are for dismissal of the breach contract and constructive trust claims

(third and fourth causes of action), are similarly granted.

With respect to the breach of contract claim - asserted solely against MHM - the

complaint alleges that instead of providing beneficial financial advice, MHM allegedly

10-

advised and caused" ABS to enter into the October, 1998 private placement, thereby

breaching the FAA aJ;d the implied "covenant of good faith and fair dealing" (Cmp1t.

62- 65).

The Cour, however, has already concluded that the terms of the FAA required an

affirmative request for advice; that no such request was made; that MHM did not advise

or cause ABS to enter into the 1998 private placement, and that, in any event, the record

fails to support the plaintiff' s underlying assumption that alternative, financing options

were realistically available to ABS at the time in question.

Furher, the " (p)laintiffs reliance upon the implied covenant of good faith and fair

dealing * * * is unavailng inasmuch as the covenant, if construed as broadly as plaintiff

proposes, would effectively annul other express terms of the contract and create

contractual rights independent of the contract" itself (Cushman & Wakefield. Inc. v.

American Management Ass n Intern Inc. , 8 AD3d 67 , 68 see also Murphy v. American

Home Products Corp , 58 NY2d 293 304-305 (1983); Golub Associates Inc. v.

Lincolnshire Management. Inc. , 1 AD3d 237 238).

Lastly, the Court agrees that the plaintiff s fourh cause of action sounding in

constructive trst, must also be dismissed.

Although the constrctive trust remedy is extremely flexible and "may be imposed

whenever necessary in order to satisfy the demands of justice

" (

Simonds v. Simonds , 45

NY2d 233 241-244 (1978); Weadick v. Herlihy, 16 AD3d 223; Lipton v. Donnenfeld, 5

AD3d 356 357-358), its application is not unlimited, since proof must be submitted

demonstrating, inter alia unjust enrichment and the existence of a fiduciary or

confidential relationship (Saunders v. AOL Time Warner. Inc AD3d (Ist Dept.

2005); Modica v. Modica, 15 AD3d 635 637 see Sharp v Kosmalski , 40 NY2d 119 , 121

(1976); Gaglio v. Molnar-Gagli, 300 AD2d 934 938; see also Citbank. N.A. v. Walker

12 AD3d 480 481).

Here, the Cour has previously rejected the plaintiffs claim that a confidential or

11-

fiduciar relationship existed between the movants and ABS, thereby foreclosing reliance

upon a constrctive trust theory of recovery (Q.. Saunders v. AOL Time Warner. Inc

supra: Sokol v. Addison, 293 AD2d 600; Ellner v. Pope, 285 AD2d 624 625; Ruha v.

Guior. 277 AD2d 116). Additionally, since ABS effectively obtained the benefit of its

bargain by securing the funding it required and then successfully retiring the outstanding

debentues, its claim that the movants were unjustly or inequitably enriched at its

expense, IS unpersuasive.

The Court has considered the plaintiff s remaining contentions and concludes that

none are sufficient to defeat the movants ' motion for summary judgment.

Lastly, the plaintiffs request for leave to serve an amended complaint - made

without service of a cross motion or an annexed proposed pleading - is denied (CPLR

3025 (b); Loehner v. Simons , 224 AD2d 591 see also Young v. A. Holly Patterson

Geriatric Center, 792 NYS2d 914 (2 Dept. 2005); Sewkarran v. DeBells , 11 AD3d 445

see , Defs ' Reply Brief at 15- 16).

Accordingly, it is

ORDERED that the motion for summar judgment dismissing the complaint

insofar as asserted against the moving defendants, is granted.

Dated: May 13 , 2005

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