Virginia Rice, et al. v. Baker & Hostetler, L.L.P., et al ...securities.stanford.edu › filings-documents › 1031 › BHL04-01 › 20002… · Baker & Hostetler's involvement with

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UNITED STATES DISTRICT COURT fAlMIDDLE DISTRICT OF FLORIDA - F"

AT ORLANDO ~+y' ` '„ • v 3

VIRGINIA RICE, RICHARD W .CUNNINGHAM, and WANDA L . HARDIN ,

Plaintiffs ,

V .

BAKER & HOSTETLER, LLP,FRANK M. MOCK, andJEFFREY E. DECKER,

Defendants .

t; _:R Tc:i f: t ? f Utt10A

No. c `y"1 l ( `8

CLASS ACTION COMPLAINT AND DEMAND FOR JURY TRIAL

A. PARTIES. JURISDICTION, AND VENUE

1 . Plaintiffs are residents of the state of Missouri and sustained damages a s

a result of their investment in a leasing program offered and sold by Alliance Leasing

Corporation and Prime Atlantic, Inc ., with the assistance of the named defendants .

2 . Defendant Baker & Hostetler LLP (Baker & Hostetler) is, on

information and belief, a limited liability partnership engaged in the practice of law .

Baker & Hostetler's principal office is in Ohio . The firm has an office in Orlando ,

Florida.

3 . Defendant Frank M. Mock (Mock) is a resident of this judicial district

and is a partner or principal of Baker & Hostetler , practicing out of the firm's Orlando ,

Florida office . Mock acted as an agent of Baker & Hostetler in connection with the

events and transactions giving rise to plaintiffs' claims, and Baker & Hostetler is legall y

responsible for his actions .

4. Defendant Jeffrey E . Decker (Decker) is a resident of this judicial

district and is a partner or principal of Baker & Hostetler, practicing out of the firm' s

Orlando, Florida office . Decker acted as an agent of Baker & Hostetler in connectio n

with the events and transactions giving rise to plaintiffs' claims , and Baker & Hostetler

is legally responsible for his actions .

5 . This Court has original jurisdiction over the federal securities claim s

asserted in this action pursuant to 15 U .S.C. §78aa and 28 U .S.C. §1331 .

6 . The Court has jurisdiction over plaintiffs ' state law claims pursuant to 2 8

U.S .C . § 1367 and the doctrine of pendant jurisdiction .

7 . Venue is appropriate in this district pursuant to 28 U .S .C. §1391 because

the defendants reside in this district and a substantial part of the events and omission s

giving rise to plaintiffs' claim occurred here .

B. FACTUAL ALLEGATION S

8 . In 1997, a California based company called Alliance Leasing

Corporation (Alliance) began to market nationwide an investment scheme known as the

Alliance leasing program . Under this program, as represented to investors, Allianc e

was to receive and manage investor funds, using the funds to acquire personal property

(such as automatic teller machines, photocopiers, computers, cellular phones and

kitchen equipment) that would be leased to businesses throughout the country at highl y

profitable rates . Alliance retained Prime Atlantic, Inc . (Prime), a company based in

2

Jacksonville, Florida, as the exclusive national marketing coordinator for the Alliance

leasing program. Prime received 30% of all funds invested, though this enormou s

commission was never disclosed to plaintiffs or other Alliance leasing progra m

investors .

9. Alliance and its agents marketed the leasing program to potential

investors throughout the country during 1997 and 1998 as a safe, non-speculativ e

investment that would provide to investors returns of between 28% and 32% over two

years .

10. Before its operations were shut down by the Securities and Exchange

Commission (SEC) in October of 1998, Alliance raised approximately $50,000,000

from investors throughout the country . Like many of the plaintiffs in this case, a larg e

portion of the people who invested were retirees interested only in safe and

conservative investments .

11 . In virtually every respect, the Alliance Leasing program was a fraud .

Alliance intentionally and recklessly made numerous misrepresentations and omissions

of material facts to plaintiffs and other investors, including the following :

• Alliance was promoted as a highly reputable firm, but failed to disclose that

in 1995 state securities regulators in California and Wisconsin had

successfully obtained permanent injunctions and cease-and-desist order s

against two of Alliance's principal officers in connection with thei r

fraudulent offer and sale of unregistered securities and their failure t o

register as a broker-dealer ;

3

• Investors were led to believe that except for Alliance's 10% "management

fee," all their money would be used to acquire leasable property; the

enormous 30% commission to Prime was concealed, as were other payments

that Alliance made to itself or its affiliates ;

• Investors were told that Alliance carefully identified, evaluated and selecte d

creditworthy third-party lessees, when in truth the majority of leases were

made to entities affiliated with Alliance in non-arms'-length transactions ;

• Investors were led to believe that the Alliance program was marketed with

the utmost respect for law and ethical practices, when in truth Alliance wa s

selling unregistered securities in violation of state and federal law ;

• Investors were told that each investor's money would be invested separatel y

in an identifiable piece of property without any commingling with other

investor funds, when such a plan was unworkable and in fact ignored b y

Alliance ;

• Investors were told that Alliance would profitably re-sell leases when that

would be impossible given the large number of affiliated leases and the large

amount of investor money that was never placed in leases ; and

• Investors were led to believe that their investments were fully insured by a

large international insurance company, when in truth the scope of the actua l

coverage was far less than that represented and the majority of leases were

never covered by any insurance .

12 . Alliance engaged in a number of additional acts of fraud and/or

conversion with respect to its leasing program, including (a) diverting investor money

4

to Alliance's officers and affiliates and to relatives of Alliance's officers, (b) buyin g

equipment from an affiliated entity at above fair market value, (c) paying undisclose d

commissions to itself or its affiliates, (d) using new investor money in a Ponzi schem e

fashion to make payments owed to prior investors, and (e) converting and paying 30 %

of each investor dollar to Prime, without any authority for doing so .

13 . One of the significant marketing hooks used by Alliance and Prime to

attract agents and investors to the Alliance leasing program was the fact that Alliance' s

legal work was being done by Baker & Hostetler, a nationally known law firm . Baker

& Hostetler's involvement with the Alliance leasing program began in January of 1998 ,

when Mr. David Halsey, the president of Prime, contacted defendant Mock and

requested that Baker & Hostetler provide legal services to Alliance and Prime .

14 . Baker & Hostetler attempted to obtain information about Allianc e

through Dunn & Bradstreet, but Dunn & Bradstreet reported that it had no informatio n

regarding Alliance's management, finances, or credit history . Nevertheless, Mr. Mock

agreed that his firm would undertake the representation and thereby assumed fiduciary

duties to Alliance . In its February 4, 1998 engagement letter to Alliance, Baker &

Hostetler agreed to provide "general representation of Alliance in connection with [its]

contractual arrangements and leasing program." At no time before the SEC shut down

Alliance's operations did Baker & Hostetler ever obtain or review any Alliance

financial statements or undertake any meaningful due diligence of its operations ,

officers, or directors .

15 . In the weeks following its agreement to render legal services to Alliance ,

Baker & Hostetler reviewed information and documentation concerning the Allianc e

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leasing program, including the joint venture agreement that embodied the basi c

agreement between Alliance and investors who put money in the program . On March

27, 1998, Baker & Hostetler wrote David Halsey and advised that Alliance's join t

venture agreement might constitute a security, which would of course require

registration under and compliance with applicable state and federal securities laws .

Baker & Hostetler offered to prepare a new agreement for Alliance to substitute i n

place of the joint venture agreement . Alliance and Prime requested that the firm do so .

16. In early April, 1998, Baker & Hostetler prepared and forwarded to Mr .

Halsey a multi-page equipment management agreement (EMA) to be used by Alliance

in place of the joint venture agreement . After further consultation with its client, Baker

& Hostetler provided a revised version of the EMA.

17. Since the SEC filed suit against Alliance and Prime, Baker & Hostetle r

has taken the position that it prepared only a "draft" of the EMA which was no t

intended for use without additional legal research . In fact, however, from as early as

April 20, 1998 until the SEC suit in October , 1998 , defendants were fully aware that

Alliance was using the EMA drafted by Baker & Hostetler as its principal contract with

investors . Throughout these months, defendants never objected to Alliance's use of the

EMA, nor advised Alliance that it might be violating the securities laws through its us e

of the EMA . Furthermore, defendants knew that Alliance was using the EMA to solicit

investments in its program and that investors would rely on the terms of the EMA as a

complete and accurate statement of the rights and obligations of the parties thereto .

18. On April 20, 1998, Alliance advised defendants that the State of

Mississippi had initiated proceedings against Alliance based on Alliance's sale o f

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unregistered securities in that state . From April until October, 1998, Baker &

Hostetler assisted Alliance in defending against the legal proceedings initiated by the

State of Mississippi, and subsequently, by other states .

19. In late April, 1998, Alliance sent to B&H its marketing agreement wit h

Prime . This document disclosed that Prime was receiving 30% of each dollar invested

in the Alliance program. Even before receiving this agreement, defendants were awar e

that Prime was receiving a significant commission for its fund-raising role in th e

Alliance program . Defendants were also aware from March until October of 1998 tha t

Alliance and its agents were fraudulently failing to disclose Prime's commission t o

prospective investors .

20. In their dealings with Alliance, defendants communicated with and took

directions from Alliance personnel named Charles and Susan Brown and Sharon Oliver ,

who held themselves out as Prime's chief executive officer, chief operating officer, an d

administrative vice-president, respectively . Defendants were advised early on that the

Browns had in fact started Alliance . At least as early as April 30, 1998, however ,

defendants learned that the Browns, who were controlling Alliance's operations and

conducting its legal affairs, were not officers or even employees of Alliance, but simpl y

called themselves "consultants ." Likewise, Baker & Hostetler learned that Sharo n

Oliver was not an officer or employee, but only a "consultant" to Alliance .

Notwithstanding the critical legal matters regarding which Baker & Hostetler

represented Alliance from February, 1998 until October, 1998, defendants never ha d

any communications from Alliance's officers or directors, nor ever tried to contact

them. From the "consultants" with whom they dealt, defendants received the bizarr e

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information that a Mr . John McDonald had been elected president, vice-president, and

secretary of Alliance in January of 1998, but that this gentleman did not provide day-to-

day services to the company . Defendants also learned that a Mr . Robert Semonian ,

whom the Browns had told defendants was the chief financial officer and treasurer o f

Alliance, denied that he was, or had ever been, an officer or director of the company .

Notwithstanding these alarming disclosures, defendants continued to deal with and tak e

instructions from Alliance' s "consultants " and made no effort to contact a legitimate

fiduciary of the company.

21 . In early May, 1998, defendants learned that two additional states ,

Maryland and Florida, had initiated investigations against Alliance based on the sale o f

unregistered securities in those states .

22 . On May 13, 1998, Alliance sent defendants a copy of a letter Alliance

proposed to send to the securities authorities in Maryland . In an attempt to deflect the

Maryland investigation, which was premised on Alliance's use of the old joint ventur e

agreement, Alliance's letter asserted that the only agreement Alliance was now usin g

was the EMA, a copy of which was to be sent to the Maryland Securities Division .

Baker & Hostetler revised the letter to Maryland for Alliance, but did not suggest tha t

the EMA not be sent to the Maryland authorities or that Alliance should stop using it .

23 . On June 5, 1998, apparently concerned about growing legal problem s

engulfing the Alliance program, defendants sent a letter to Alliance asserting that, to

date, defendants had not "engaged in any work related to the compliance by [Alliance ]

with applicable securities and other laws on a going forward basis" This letter furthe r

stated that "recently, you have requested that this firm begin to advise [Alliance] wit h

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respect to its ongoing securities compliance ." These assertions were contrary to th e

understanding of the Browns and Mr . Halsey, who reasonably understood that Baker &

Hostetler had all along been providing legal counsel related to Alliance's ongoing

operations .

24 . On June 22, 1998, defendants learned that Charles and Susan Brown had

been found guilty of securities violations in Wisconsin in 1995 . Had defendants done

any investigation, they would have learned that the Browns had also been found guilt y

of securities violations in California. Defendants knew or recklessly disregarded the

obvious fact that this history of securities violations was the reason the Browns ha d

chosen not to be officers and directors of their new company, but simply "consultants . "

25 . In response to an inquiry from defendants about the Wisconsin problem ,

Susan Brown wrote defendants letters on June 22 and 24, 1998, denying that she an d

Charles Brown had any knowledge of the Wisconsin securities actions against them .

Contrary to these representations, defendants had already received a copy of the

consent to judgment signed by Charles Brown in the Wisconsin proceedings .

Notwithstanding this clear evidence that the Browns were not being truthful, defendants

dropped the issue and continued to assist Alliance with its leasing program and its legal

affairs. Defendants never advised Alliance to disclose to potential investors the

Browns' past securities violations .

26 . On June 29, 1998, defendant Decker prepared an internal memorandum

to another Baker & Hostetler attorney who was planning to attend a meeting wit h

Alliance scheduled for July 1, 1998 . In this memorandum, Mr. Decker acknowledge s

that Baker & Hostetler prepared the EMA, but adds that the firm had "suggested" the

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EMA not be used until more research was done. Mr . Decker also states that Alliance i s

"apparently" using the EMA (in fact, defendants had conclusive knowledge of tha t

fact). Mr . Decker's memorandum further states that the firm does not have enough

information to decide whether to represent Alliance on a more comprehensive basis

because it had done very little due diligence regarding Alliance or its people . Mr .

Decker also states that the documents defendants had received "strongly suggest" tha t

Alliance was continuing to violate the securities laws and adds that defendants ha d

received evidence raising questions about the legitimacy of Alliance's business .

27 . Notwithstanding the positions stated in defendant Decker's memorandum

of June 29, 1998, defendants never advised Alliance or Prime of their view that

Alliance was violating the securities laws .

28. On July 1, 1998, defendants met with representatives of Alliance. At

that meeting, defendants advised Alliance that it needed to receive additional

documentation and information in connection with its review of Alliance's securitie s

compliance issues .

29. On July 10, 1998, Alliance wrote Baker & Hostetler providing a large

number of documents regarding its business operations so that defendants could help

them "fill any holes in our paperwork to insure regulatory compliance ." Among this

information was documentation making clear that Alliance was representing to investor s

that 90% of their investment would be used to purchase leased equipment . Defendants

knew that such representations were fraudulent and false because, as defendants knew ,

30% of each investor dollar was going to Prime as a commission .

10

30 . On July 27, 1998 , defendants learned that the Maryland securities

authorities were taking the position that Alliance 's use of the EMA drafted by Baker &

Hostetler constituted the sale of unregistered securities . Defendants did not disclose to

Alliance that they agreed with this assessment, nor did they advise Alliance to stop

using the EMA .

31 . On August 3, 1998, Baker & Hostetler received copies of cease an d

desist orders entered against Alliance and Prime in Mississippi . These orders were

based, in part, on Alliance's fraudulent failure to disclose Prime's 30% commission t o

potential investors . Neither before nor after this event did defendants advise Alliance

or Prime to disclose the Prime commission to investors .

32. On August 5, 1998, Baker & Hostetler received a newspaper article

asserting that Alliance was targeting senior citizens as investors in its program .

33 . On August 10, 1998, defendants learned that the State of Washingto n

had initiated securities law proceedings against Alliance .

34. On August 14, 1998, defendants received a copy of an Alliance letter to

the State of Mississippi . This letter denied any wrongdoing (at a time B&H has alread y

concluded to the contrary) . Documents defendants received at this time also made clea r

that Alliance was selling its program to unsuitable investors .

34. On September 9, 1998, defendants received notice that the State of Ne w

Hampshire had initiated securities proceedings against Alliance .

35 . On September 17, 1998, defendants received notice that the State of

Missouri had initiated securities proceedings against Alliance and also learned that th e

Mississippi authorities might pursue criminal charges .

11

36 . Throughout September, 1998, defendants continued to represent Alliance

with respect to its securities law compliance and in defending the state actions note d

above, knowing that Alliance was continuing to market its program throughout th e

country using the EMA prepared by Baker & Hostetler, violating the securities laws ,

and defrauding investors .

37 . On October 1, 1998, Baker & Hostetler sent a letter to Alliance stating

that the firm had not yet reached a conclusion that Alliance's business complied with al l

state and federal securities laws . The letter adds Baker & Hostetler's "caution" tha t

Alliance may be violating the law and states that the firm is "working diligently t o

provide you with a definitive opinion . "

38 . On October 6, 1998, the SEC filed suit against Alliance and Prime in

federal court in California, alleging securities fraud and seeking injunctive relief .

Baker & Hostetler declined to represent Alliance in the SEC action . The court issued

an injunction and froze the assets of these defendants . Shortly thereafter, Alliance filed

for bankruptcy . A review of Alliance's records by the trustee and the bankruptc y

creditors' committee has revealed that the Alliance Leasing program was rife wit h

fraud. The trustee has advised investors that they will lose the majority of thei r

investments . These losses were caused, in large part, by factors of which defendant s

were aware and failed to disclose : (a) Alliance's payment of enormous, undisclosed

marketing commissions, (b) the fact that Alliance did not have a developed busines s

that would permit the efficient utilization of millions of dollars in investments, (c) th e

disruptive impact of Alliance's ongoing violations of the securities laws, and (d) th e

dishonesty of the individuals running Alliance .

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C . CLASS ALLEGATIONS

39. Plaintiffs bring this action on their own behalf and as a plaintiff class

action pursuant to Rule 23(b)(1) and (b)(3) of the Federal Rules of Civil Procedure on

behalf of a plaintiff class (the "Plaintiff Class") consisting of those individuals and

entities who purchased interests in the Alliance leasing program from agents of Allianc e

in Missouri from April 20, 1998 until the SEC enjoined the operations of Alliance (the

"Class Period"). Excluded from the Plaintiff Class are the defendants ; any subsidiary ,

parent, or other affiliate of the defendants ; the officers and directors of the defendant s

and members of their immediate families ; and the legal representatives, heirs ,

successors, or assigns of any such excluded party .

40 . The members of the Plaintiff Class are so numerous that joinder of al l

members is impracticable .

41 . Plaintiffs' claims are typical of the claims of the other members of th e

Plaintiff Class . Plaintiffs and all of the other members of the Plaintiff Class sustaine d

damages as a result of defendants' wrongful conduct complained of herein .

42 . Plaintiffs will fairly and adequately protect the interests of the member s

of the Plaintiff Class and have retained counsel competent and experienced in class and

securities litigation .

43 . A class action is superior to other available methods for the fair an d

efficient adjudication of this controversy . Because the damages suffered by many

individual Plaintiff Class members may be relatively small, the expense and burden o f

individual litigation make it difficult for some Plaintiff Class members to individuall y

seek redress for the wrongful conduct alleged herein .

13

44. Common questions of law and fact exist as to all members of the Plaintiff

Class and predominate over any questions solely affecting individual members of the

Plaintiff Class . Among the questions of law and fact common to the Plaintiff Class are :

(a) whether the Alliance leasing program constituted the sale of a n

unregistered security ;

(b) whether the Alliance leasing program was marketed by the use o f

false and/or misleading information and/or material omissions ;

(c) whether Alliance converted plaintiffs' funds ;

(d) whether defendants knew of and recklessly ignored Alliance's

fraud and misconduct and gave substantial assistance to Alliance ;

(e) whether defendants actions' violated the state and federa l

securities laws ;

(f) whether defendants had a duty to disclose and failed to disclose

material information to plaintiffs ; and

(g) whether plaintiffs and the other members of the Plaintiff Class

have sustained damages as a result of defendants' actions and, i f

so, the appropriate measure of those damages .

45 . Plaintiffs know of • no difficulty that will be encountered in th e

management of this litigation that would preclude its maintenance as a class action .

46 . The names and addresses of the Alliance investors during the Clas s

Period are in the possession of plaintiffs' counsel . Notice can be provided to suc h

record owners via first class mail using techniques and a form of notice similar to thos e

customarily used in class actions .

14

D. COUNT ONE - COMMON LAW FRAUD

47 . Plaintiffs incorporate herein paragraphs 1-46 above .

48 . Alliance and its agents sold the Alliance leasing program to plaintiffs

through the use of intentional and/or reckless misrepresentations and omissions o f

material fact, which included those set forth in paragraph 11 above . Alliance intended

that plaintiffs and other investors would rely on these representations .

49 . Alliance engaged in a number of additional acts of fraud and/or

conversion as set forth in paragraph 12 above .

50 . Acting for their own benefit, defendants knew of and recklessly ignore d

Alliance's fraud and misconduct and gave substantial assistance to Alliance i n

marketing its program to plaintiffs and other investors. Defendants therefore aided and

abetted and are legally responsible for Alliance's fraud and conversion .

51 . Defendants are also liable to plaintiffs because of their failure to disclos e

to plaintiffs and other potential Alliance investors the critical information they

possessed concerning Alliance's misrepresentations and the securities problems Allianc e

had encountered . Defendants had a duty to disclose this critical information because o f

their superior knowledge of information that was not available to investors through the

exercise of reasonable diligence, because they knew that investors were being solicite d

with and relying on misinformation contained in the EMA drafted by defendants, and

because defendants were profiting from Alliance's program .

52 . Plaintiffs reasonably relied on the representations and omissions of

Alliance, its agents, and defendants, as Alliance and defendants intended . Plaintiffs had

no reasonable basis for ascertaining the true facts and have been substantially damage d

15

as a direct and proximate result of their reliance on the representations and omissions of

Alliance and defendants . Plaintiffs were also damaged by Alliance's tortious

conversion, which defendants aided and abetted . Plaintiffs are therefore entitled to

recover from defendants the full amount of their losses, plus pre judgment interest and

punitive damages .

E. COUNT TWO - VIOLATION OF SECURITIES EXCHANGE ACT

53 . Plaintiff incorporates paragraphs 1-52 as if fully set forth herein .

54. Plaintiffs made passive investments in a common enterprise in which the

success of their investment depended on the efforts and expertise of Alliance .

Plaintiffs' funds were commingled and pooled with the funds of other Allianc e

investors . Also, the equipment management agreement plaintiffs entered into with

Alliance constituted an evidence of indebtedness and a profit sharing agreement .

Accordingly, the investments made by plaintiffs in the Alliance leasing program

constituted securities as defined by the federal Securities Exchange Act of 1934 .

55 . In connection with the offer and sale of securities, defendants knowingl y

and recklessly employed devices, schemes and artifices to defraud, made materia l

misrepresentations and omitted to state material facts necessary to make the statements

made not misleading, and engaged in acts and practices that operated as a fraud or

deceit on plaintiffs, all in violation of § 10(b) of the Securities and Exchange Act of

1934, 15 U .S.C. 78j, and Rule 10b-5 of the SEC Regulations promulgated under that

Act . Specifically, the EMA prepared by defendants contained the followin g

misrepresentations, material omissions, and deceitful characteristics :

16

(a) The EMA specifies the fees and expenses that Alliance may deduct from

each dollar invested by the principal and provides that Alliance has n o

authority beyond that set forth in the EMA . The EMA specifically

authorizes Alliance to pay itself the fees to which it was entitled and to pa y

certain other expenses incurred in connection with leasing transactions .

The agreement does not authorize Alliance to pay any portion of an

investor's investment for fund-raising commissions such as those paid t o

Prime . Thus, the EMA omits to disclose the highly material fact, know n

to defendants, that Alliance intended to pay and did in fact pay to Prim e

Atlantic 30% of each investor dollar .

(b) the EMA states that the part ies acknowledge and agree that the principal

will be "solely responsible" for determining the use of equipmen t

purchased for lease . This was a sham. Defendants knew that the investor s

targeted by Alliance lacked the ability, experience , and information

necessary to make such decisions . They also knew that if the hundreds o f

people who invested in the Alliance program had in fact attempted to

exercise significant decision-making responsibility, the entire progra m

would have been unworkable .

(c) The EMA fails to disclose the facts, known to defendants, that Alliance

was selling unregistered securities in violation of state and federal law an d

that there was a significant risk that governmental authorities would shu t

down Alliance' s operations .

17

56 . In addition, Baker & Hostetler is liable for the Rule lOb-5 violations o f

Mock and Decker as a control person under 15 -U .S .C. §78t because the law firm

exercised general supervisory authority over the conduct of these lawyers and had th e

power to control the specific conduct that gives rise to this case .

57 . Plaintiffs were unaware of and reasonably relied on Alliance's and

defendants' misrepresentations and omissions and have been substantially damaged as a

direct and proximate result of defendants' misconduct .

58. Defendants are therefore liable to plaintiffs for the full amount of thei r

losses, plus pre judgment interest .

F. COUNT THREE - VIOLATION OF FLORIDA SECURITIES AC T

59. Plaintiffs incorporate herein paragraphs 1-58 above .



Plaintiffs' funds were commingled and pooled with the funds of other Alliance



Accordingly , the investments made by plaintiffs in the Alliance leasing program

constituted securities as defined by the Florida Securities and Investor Protection Act ,

Fla. Stat . § 517.021 .

61 . These securities were not registered with the Florida Division o f

Securities as required by Fla . Stat. § 517 .07, nor did they fall within any of the

exemptions from registration provided under Fla . Stat. §§ 517 .051 and 517 .061 .

18

Alliance therefore sold unregistered securities to plaintiffs in violation of Florida Stat .

§ 517 .07 . Motivated by economic self-interest , defendants knowingly participated an d

aided in the offer and sale of the Alliance leasing program to plaintiffs . Defendants

wrongful conducted occurred primarily in Florida . Defendants are therefore jointly and

severally liable to plaintiffs under Fla . Stat . § 517 .211 for their damages, plus interes t

and attorney's fees .

62. Furthermore, in connection with the offer and sale of securities ,

defendants employed devices, schemes and artifices to defraud, made materia l

misrepresentations and omitted to state material facts necessary to make the statements


deceit on plaintiffs, all in violation of Fla . Stat . § 517 .301 . Defendants knew, should

have known, or were reckless and negligent in not knowing of the fraudulent nature o f

these acts and practices and/or the falsity of the misrepresentations and the implie d

representations of the nonexistence of the material facts made to the plaintiffs .

63 . In addition, defendants participated in, aided and abetted, and rendered

substantial assistance to Alliance, notwithstanding their knowledge of and reckles s

disregard of facts regarding Alliance's fraud and illegal conduct . Defendants are

therefore liable for aiding and abetting Alliance's securities fraud .

64. Plaintiffs justifiably relied on the above-referenced misrepresentations o f

material facts and implied representations of the nonexistence of the omitted materia l

facts made by Alliance, their agents, and defendants .

65. Plaintiffs have been damaged as a direct and proximate result of their

justifiable reliance on the misrepresentations of material facts and implie d

19

representations of the nonexistence of the omitted material facts made by Alliance and

defendants .

66. Defendants are therefore jointly and severally liable to plaintiffs unde r

Fla. Stat. § 517.211 for the amount they invested in the Alliance leasing program, plus

pre judgment interest and attorney's fees .

G. COUNT FOUR - VIOLATION OF MISSOURI SECURITIES AC T


68. As defendants were aware, Alliance and its agents solicited investment s

in its leasing program throughout the country . Plaintiffs purchased their investments in

Missouri , where they reside , from agents of Alliance who also reside in Missouri .







constituted securities as defined by the Missouri Securities Act .

70. The securities at issue in this case were not registered under eithe r

federal or Missouri law . Alliance therefore sold unregistered securities to plaintiffs in

violation of §409 .301 of the Missouri Securities Act .

71 . In connection with the offer and sale of securities in Missouri, Allianc e

and defendants employed devices, schemes and artifices to defraud, made materia l

20

misrepresentations and omitted to state material facts necessary to make the statement s


deceit on plaintiffs, all in violation of §409 . 101 and §409 .109 of the Missouri Securitie s

Act .

72 . Plaintiffs reasonably relied on the above-referenced misrepresentations ,

omissions, and conduct and have been substantially damaged as a direct and proximat e

result .

73 . Furthermore, defendants aided and abetted and rendered substantia l

assistance to Alliance, notwithstanding their knowledge and reckless disregard of fact s

indicating Alliance's fraud and illegal conduct. Defendants are therefore liable for

aiding and abetting Alliance's violations of the above-referenced provisions of th e

Missouri Securities Act .

74 . In addition, Baker & Hostetler is liable as a "control person" unde r

§409.411(b) of the Missouri Securities Act for the violations of defendants Mock and

Decker because the law firm exercised general supervisory authority over the conduc t

of these lawyers and had the power to control the specific conduct that gives rise to thi s

case .

75. Defendants are therefore liable to plaintiffs, jointly and severally, unde r

§409.411 of the Missouri Securities Act for the amount they invested in the Alliance

program, plus pre judgment interest and attorney's fees .

H. COUNT FIVE - VIOLATION OF CALIFORNIA SECURITIES ACT


21

77 . Plaintiffs made passive investments in a common enterprise in which the

success of their investment depended on the efforts and expe rt ise of Alliance .


investors. Also, the equipment management agreement plaintiffs entered into with



constituted securities as defined by the California securities laws .

78 . Alliance was at all material times headquartered in California, it offere d

the securities that are the subject of this lawsuit from California, and plaintiffs '

acceptance of Alliance's securities offer was directed to Alliance in California .

Alliance violated the California securities laws addressed in this count in California .

Defendants were aware of these facts at all material times .

79. The securities sold to plaintiffs and the other Alliance investors were no t

registered or qualified under California's securities laws, nor did they fall within any o f

the exemptions from registration provided by California law . Alliance therefore sold

unregistered securities to plaintiffs in violation of §25110 of the California Corporatio n

Code.

80 . Furthermore, in connection with the offer and sale of securities i n

California, and for the purpose of inducing plaintiffs and other investors to purchase it s

securities , Alliance willfully and knowingly made misrepresentations of material fact

and omitted to state material facts necessary to make the statements made no t

misleading, all if violation of §25400 and §25401 of the California Corporation Code .

22

81 . Motivated by economic self-interest, defendants willfully and with the

intent to deceive participated in, aided and abetted, and rendered substantial an d

material assistance to Alliance's illegal securities sales, notwithstanding their

knowledge of and reckless disregard of facts regarding Alliance's fraud and illega l

conduct. Defendants are therefore liable for -aiding and abetting Alliance's sale o f

unregistered securities and its securities fraud pursuant to §25504 .1 of the California

Corporation Code. Defendants are also liable under §25500 of the Californi a

Corporation Code .

82. Plaintiffs justifiably relied on the above-referenced misrepresentations o f

material facts and implied representations of the nonexistence of the omitted materia l

facts made by Alliance, their agents, and defendants, and had no reasonable basis fo r

ascertaining the true facts .

83 . Plaintiffs have been damaged as a direct and proximate result of thei r

justifiable reliance on the misrepresentations of material facts and implie d

representations of the nonexistence of the omitted material facts made by Alliance and

defendants .

84 . Defendants are therefore jointly and severally liable to plaintiffs for the

damages and remedies afforded by §25500, §25501, and §25503 of the Californi a

Corporation Code .

85 . In addition, Baker & Hostetler is liable for the California securities la w

violations of Mock and Decker as a control person under §25504 of the Californi a

Corporation Code because the law firm exercised general supervisory authority over the

23

conduct of these lawyers and had the power to control the specific conduct that give s

rise to this case .

86 . Plaintiffs discovered their legal rights against defendants within the last

year and would not have discovered these rights earlier through the exercise o f

reasonable diligence .

THEREFORE, plaintiffs respectfully request that the Court :

1 . Award judgment in favor of each plaintiff and against the defendants ,

jointly and severally, for the full amount of their losses in the Alliance leasing program ,

plus pre judgment interest ;


jointly and severally, for punitive damages in an appropriate amount ;


jointly and severally , for reasonable attorneys' fees ;

4 . Afford plaintiffs a trial by jury pursuant to Rule 38(b), Fed . R. Civ . P . ;

and

5 . Provide such further relief as the Court deems to be just and proper .

Respectfully submitted ,

VIla, /";9H. Nai 1 a s r ., Ten& r #6787(trial counsel)John B . Veach III, Tenn . Bar #008994FALLS & VEACH

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3422 Woodmont Blvd .Nashville, TN 37215Phone : (615) 242-1800FAX : (615) 242-182

A & ~~71-&~'Frederic S . Zinober, #341657Lee Wm. Atkinson, #340375(trial counsel )Tew, Zinober, Barnes, Zimmet & UnicePrestige Professional Park2633 McCormick DriveClearwater , Florida 34618Phone : (727) 799-2882FAX: (727) 799-0058

25

CERTIFICATION OF PLAINTIF F

I, Wanda L. Hardin, hereby state as follows :

1 . I have reviewed the foregoing complaint.

2 . I did not purchase the security that is the subject of the complaint at the

direction of plaintiff's counsel or in order to participate in any private action under th e

securities laws .

3 . I am willing to serve as a representative party on behalf of a class ,

including providing testimony at deposition and trial, if necessary .

4. I have not filed a class or representative action before .

5. I understand that I may not receive or accept any payment for serving as a

representative party beyond my pro rata share of any recovery in this case, unless ordere d

or approved by the Court .

6 . 1 certify under penalty of perjury that the foregoing is true and correct .

Executed this It> day of February, 2000 .

614Wanda L. Hardin


I, Richard W . Cunningham, hereby state as follows :

1 . I have reviewed the foregoing complaint .

2 . I did not purchase the security that is the subject of the complaint at the


securities laws.

3. I am willing to serve as a representative party on behalf of a class ,



5. 1 understand that I may not receive or accept any payment for serving as a

representative party beyond my pro rata share of any recovery in this case, unless ordered

or approved by the Court.

6 . 1 certify under penalty of perjury that the foregoing is true and correct .

Executed this day of February, 2000 .

Richard W. Cunningh


I, Virginia Rice, hereby state as follows :

1 . I have reviewed the foregoing complaint .

2. I did not purchase the security that is the subject of the complaint at the


securities laws .

3 . I am willing to serve as a representative party on behalf of a class ,



5 . I understand that I may not receive or accept any payment for serving as a

representative party beyond my pro rata share of any recovery in this case, unless ordered

or approved by the Court .

6. I certify under penalty of perjury that the foregoing is true and correct .

Executed this A day of February , 2000.

Vir inia Rice