Case 1:18-md-02865-LAK Document 350-6 Filed 05/20/20 Page 1 of 247
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`Exhibit 5
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`Case 1:18-md-02865-LAK Document 350-6 Filed 05/20/20 Page 2 of 247
`Ades v. Deloitte & Touche, Not Reported in F.Supp. (1993)
`Fed. Sec. L. Rep. P 97,768
`
`KeyCite Yellow Flag - Negative Treatment
` Declined to Follow by Steed Finance LDC v. Laser Advisers, Inc., S.D.N.Y.,
`April 15, 2003
`
`
`
`1993 WL 362364
`United States District Court,
`S.D. New York.
`
`Morris ADES, Apmont Group, Inc., the Equity
`Group, Inc. Profit Sharing Trust, Jerome I.
`Feldman, S. Marcus Finkle, Sandra Glicksman,
`Goldstein, Golub & Kessler Profit Sharing Trust,
`Philippe Grelsamer, Richard Kessler, James
`J. Manning, Markin Trading Corp. Pension
`Trust, Randolph K. Pace, Anna B. Rosen,
`Dennis Silberman and Martin Stern, Plaintiffs,
`v.
`DELOITTE & TOUCHE, Winifred
`Schuberth, John Hanny, David F. Randall
`and Luis Santacaterina, Defendants.
`DELOITTE & TOUCHE,
`Defendant/Third–Party Plaintiff
`v.
`BOLAR PHARMACEUTICAL CO., INC.,
`Robert Shulman, Eastlake Securities, Inc.,
`William T. Hultquist, Lawson Mardon
`Group Limited, Lawson Mardon, Inc., and
`Garrett Cronin, Third–Party Defendants.
`
`Nos. 90 Civ. 4959(RWS), 90 Civ. 5056(RWS).
`|
`Sept. 17, 1993.
`
`Attorneys and Law Firms
`
`Abbey & Ellis, New York City (Lee Squitieri, of counsel), for
`plaintiffs.
`
`Shea & Gould, New York City (Leon P. Gold, David S.
`Tannenbaum, Bernard Garbutt, III, of counsel), for defendant
`Deloitte & Touche.
`
`Schulte Roth & Zabel, New York City (Irwin J. Sugarman,
`Daniel J. Kramer, and Stephen H. Weiner, of counsel), for
`Defendant Bolar Pharmaceutical Co., Inc.
`
`Phelan & Costello, P.C., New York City (John J. Phelan, III,
`of counsel), for third-party defendant Garrett J. Cronin.
`
`Robinson Brog Leinwand Reich Genovese & Gluck, P.C.,
`New York City, (David C. Burger and Richard W. Cohen, of
`counsel), for third-party defendant East Lake Securities.
`
`OPINION
`
`SWEET, District Judge.
`
`*1 Third-party defendants Bolar Pharmaceutical Co.,
`Inc. (“Bolar”), Garrett J. Cronin (“Cronin”), and Eastlake
`Securities Inc. (“Eastlake”) have moved to dismiss the counts
`against them in a third-party complaint (the “Third–Party
`Complaint”) filed by defendant Deloitte & Touche, Inc. (“D
`& T”). Third-party defendant Robert Shulman (“Shulman”)
`has moved to join the arguments to dismiss filed by all
`other defendants insofar as they may apply to his case.
`Third-party defendants Bolar and Shulman have filed cross-
`claims against each other, and, pursuant to those claims,
`Bolar has also moved to dismiss Shulman's claims against
`Bolar for contractual indemnity under Shulman's employment
`agreement with Bolar.
`
`For the following reasons, the motions are denied in part and
`granted in part.
`
`The Parties
`Direct defendant and Third–Party Plaintiff D & T is a
`partnership of certified public accountants with a place of
`business in New York State. It is the successor in interest to
`Touche Ross & Co. (“Touche”), a national accounting firm
`which acted as Qmax Technology Group, Inc's (“Qmax”)
`independent auditor at all relevant times.
`
`Qmax Technology Group, Inc. (“Qmax”) was a Delaware
`corporation with a place of business in Ohio which issued
`and defaulted on certain promissory Notes (the “Notes”) in
`July, 1988. Qmax filed for protection from its creditors under
`Chapter 11 of the United States Code on August 3, 1989, and
`pursuant to
`11 U.S.C. § 362(a) it is not a party to any of
`these proceedings.
`
`The plaintiffs in the underlying action are purchasers (the
`“Investors” or “the Plaintiffs”) of the Notes on which Qmax
`defaulted. They have sued D & T and four former officers and
`directors of Qmax, alleging among other things that D & T
`recklessly failed to correct the misimpressions created by D &
`T's approval of a stale, unqualified audited opinion for Qmax
`
` © 2020 Thomson Reuters. No claim to original U.S. Government Works.
`
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`Case 1:18-md-02865-LAK Document 350-6 Filed 05/20/20 Page 3 of 247
`Ades v. Deloitte & Touche, Not Reported in F.Supp. (1993)
`Fed. Sec. L. Rep. P 97,768
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`for use in the private placement (the “Private Placement”)
`of the Notes. The four remaining direct defendants in the
`underlying action are former officers and directors of Qmax:
`Winifred Schuberth (“Schuberth”), chairman, CEO and
`Treasurer of Qmax; John Hanny (“Hanny”), the President,
`Chief Operating Officer, and a director of Qmax; David
`F. Randall (“Randall”), Vice President of Finance and a
`director of Qmax; and Luis Santacaterina (“Santacaterina”),
`Executive Vice President of Operations and a director of
`Qmax.
`
`Third-party defendant Bolar has moved pursuant to Rule
`12(b)(6), F.R.Civ. P., to dismiss both the Third–Party
`Complaint of D & T and the cross-claim of Shulman, its
`former president and CEO and a director of Qmax from
`April 6, 1988 until August 9, 1988, for indemnity against
`Bolar. Bolar is a manufacturer and distributor of prescription
`generic drugs with offices in Copiague, New York. Bolar had
`entered into a joint venture involving the development of a
`pharmaceutical plant with Qmax in 1986 (the “Transpharma
`Plant” or the “Joint Venture”).
`
`*2 Third-party defendant Cronin has moved to dismiss the
`claims alleged against him in D & T's Third-party Complaint
`as time barred. Cronin was a Vice President of Lawson
`Mardon, Inc. (“Lawson Mardon”), a supplier to Qmax.
`Lawson Mardon is a wholly-owned Delaware subsidiary of
`Lawson Mardon Group, a Canadian corporation with offices
`in Ontario, Canada.
`
`Third-party defendant Eastlake has moved both to dismiss the
`claims against it and, in the alternate, for summary judgment.
`Eastlake is a New York corporation and licensed underwriter
`which acted as the placement agent for the Private Placement
`of Qmax's notes offered in August, 1988.
`
`Prior Proceedings
`The Investors originally filed two complaints (Ades v. Deloitte
`& Touche, 90 Civ. 4959, filed July 26, 1990, and Lane
`v. Deloitte & Touche, No. 90 Civ. 5056, filed July 30,
`1990) which were later consolidated and amended into
`one complaint filed on February 14, 1992 (the “Amended
`Complaint”). The Investors have alleged that D & T and
`the four former officers and directors of Qmax knowingly
`misrepresented Qmax's financial condition in public filings
`and materials made available to the Investors prior to their
`purchase of the Notes in violation of § 10(b) of the Securities
`Exchange Act of 1934,
`15 U.S.C. § 78j(b), and Rule 10(b)–
`
`5, 17 C.F.R. § 144.10(b)–5, (“the 10(b) action”), and pendent
`state law claims of common law fraud, negligence, and breach
`of contract.
`
`The portions of the Complaint relevant to D & T relate to
`alleged misrepresentations in an accountants' review report
`issued by D & T dated August 4, 1988 (the “Review” or the
`“Review Report”) which stated, among other things, that D &
`T found no material change in Qmax's finances from Qmax's
`financial statements from the previous year. These financial
`statements included Qmax's annual audited balance sheet for
`Qmax's fiscal year ended June 30, 1987 (the “1987 Audit
`Report”), to which D & T gave an unqualified or “clean”
`auditors' opinion, and Qmax's consolidated interim financial
`statements subsequent to the audited balance sheet.
`
`D & T's first motion to dismiss the Investors' complaints for
`failure to plead fraud with particularity was ultimately granted
`in full. D & T's second motion to dismiss the Investors' new
`Amended Complaint, however, was denied in an opinion
`dated August 11, 1992, familiarity with which is assumed.
`Ades v. Deloitte & Touche, 799 F.Supp. 1493
`See
`(S.D.N.Y.1992).
`
`After its motion to dismiss the Investors' Amended Complaint
`was denied, D & T filed an answer and cross-claims on
`September 14, 1992, controverting the central allegations of
`the complaint. In December, 1992, pursuant to Fed.R.Civ.P.
`14(a) 1 , D & T filed the Third–Party Complaint against
`seven corporate and individual third-party defendants: Bolar,
`Shulman, Eastlake, Cronin, Lawson Mardon, Inc., Lawson
`Mardon Group Ltd. (collectively, the “Moving Defendants”)
`and William T. Hultquist (“Hultquist”), a vice president and
`director of Qmax not named by the original Investors in their
`complaints. Hultquist has not joined any of the motions.
`
`*3 The Moving Defendants filed their motions to dismiss in
`December of 1992 and January of 1993. Oral argument was
`heard on March 17, 1993.
`
`The Facts
`On a motion to dismiss, all of the factual allegations in a
`complaint are accepted as true, Weiss v. Wittcoff, 966 F.2d
`109, 112 (2d Cir.1992) and all allegations must be considered
`in the light most favorable to the party against whom the
`motion is made,
`Scheuer v. Rhodes, 416 U.S. 232, 236
`(1974). The facts below, therefore, are taken from D & T's
`
` © 2020 Thomson Reuters. No claim to original U.S. Government Works.
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`Case 1:18-md-02865-LAK Document 350-6 Filed 05/20/20 Page 4 of 247
`Ades v. Deloitte & Touche, Not Reported in F.Supp. (1993)
`Fed. Sec. L. Rep. P 97,768
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`Third–Party Complaint, affidavits, exhibits, and the Investors'
`Amended Complaint (incorporated by reference in the Third–
`Party Complaint) and do not represent factual findings by the
`Court.
`
`Qmax was originally incorporated as a Delaware corporation
`in August, 1975, under the name American Thermometer
`Company. In June of 1983, it changed its name to
`Qmax Technology Group, Inc., and reincorporated American
`Thermometer Company as a wholly owned subsidiary at
`that time. Qmax also decided to develop and manufacture
`various cosmetic products and to prepare printed samples of
`cosmetics and pharmaceuticals. These ventures relied, in part,
`upon two technologies owned by Qmax: microencapsulation
`and liquid crystal technology. Microencapsulation is the
`coding or micropackaging of materials in the form of
`extremely small capsules; in the case of the cosmetic sampler
`products, for instance, liquids or solids are condensed in a
`number of tiny microcapsules printed on paper or cardboard
`until the pressure of an applicator breaks the microcapsules
`and releases the powder or liquid. Liquid crystals are a class
`of chemical compounds which, within a certain temperature
`range, possess properties of a state of matter which can be
`poured like liquids but refracts light and exhibits other optical
`properties of crystals.
`
`After certain initial successes in its cosmetics products,
`Qmax's business in this area faltered, and Qmax's cosmetic
`business as a whole declined substantially in 1988. However,
`D & T alleges that the Investors did not purchase their notes
`primarily in order to provide working capital for Qmax's
`cosmetics business, but to provide bridge financing for a
`public offering designed to raise money for a new joint
`venture, one which would use Qmax's proprietary technology
`in the area of prescription drugs.
`
`On December 24, 1986, Qmax entered into a letter agreement
`for a Joint Venture with Bolar to build a pharmaceutical plant,
`the Transpharma Plant, adjacent to Qmax's existing plant
`in Vandalia, Ohio to manufacture pharmaceutical chemicals
`using Qmax's microencapsulated technology. The first
`product proposed for the Joint Venture was the production
`of a blood pressure medication containing microencapsulated
`Potassium Chloride (“KCL”).
`
`Bolar agreed to fully capitalize the Joint Venture with a
`contribution of $3.5 million. Any additional costs related to
`the construction would be split equally by Qmax and Bolar.
`Qmax would initially own 10% of the stock in the Joint
`
`Venture and would be given an additional 40% of the stock
`two years after the first drug to be produced at the plant was
`approved by the FDA.
`
`*4 FDA requirements and the parties' desires to have
`a multipurpose capability made the Transpharma Plant
`much more expensive to build than had been originally
`planned. On April 23, 1988, Qmax filed a Form S–3 (the
`“Registration Statement”) with the SEC which disclosed that
`plant construction costs of the Joint Venture had overrun
`by $4 million. In July 20, 1988, Qmax filed an amendment
`(the “July Amendment”) to the SEC filings which disclosed
`that due to a dispute with Bolar over responsibility for the
`overruns there could be no assurance that Qmax would
`be able to recover Bolar's full share of the overruns. On
`August 5, 1988, Qmax filed another amendment (the “August
`Amendment”) to its filings with the SEC which disclosed
`that it now believed the Joint Venture would require up to
`$8 million in additional funds and that it needed to raise
`additional capital to continue with the construction. The
`August Amendment also explicitly stated that the success of
`Qmax was materially dependent upon the success of the Joint
`Venture.
`
`D & T alleges that Qmax approached Eastlake for aid in
`raising additional financing principally to continue with the
`Joint Venture, although the Investors allege Qmax needed
`money for its operational and working capital needs as well.
`Whatever the reason, Eastlake entered into a letter of intent
`dated July 21, 1988 with Qmax in to underwrite a public
`offering (the “Public Offering”) of Qmax securities scheduled
`for 1989.
`
`As part of its underwriter due diligence, Eastlake sought and
`received a letter dated July 29, 1988, from Bolar in which
`Bolar assured Eastlake that the Joint Venture Agreement
`remained in full force and Qmax was not in default on the
`Joint Venture (the “Bolar Letter”). Eastlake also arranged for
`interim bridge financing for Qmax in the form of the Private
`Placement of the Notes. The Notes, with a face value of $2.2
`million and an interest rate of 10%, were due and payable
`within one year, on July 1, 1989, or as soon as the Public
`Offering were successful.
`
`As a condition of the Investors' purchase of the Notes,
`Qmax was required to have D & T review, in accordance
`with standards established by the American Institute of
`Certified Public Accountants (“AICPA”), its consolidated
`interim financial statements as of March 31, 1988 and for
`
` © 2020 Thomson Reuters. No claim to original U.S. Government Works.
`
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`Case 1:18-md-02865-LAK Document 350-6 Filed 05/20/20 Page 5 of 247
`Ades v. Deloitte & Touche, Not Reported in F.Supp. (1993)
`Fed. Sec. L. Rep. P 97,768
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`the three-month and nine-month periods ended March 31,
`1987 and 1988. D & T represented in the Review Report
`dated August 4, 1988 that it performed a review in accordance
`with AICPA standards of the consolidated interim financial
`statements of Qmax as of March 31, 1988, and for the three
`and nine month periods ended March 31, 1988 and 1987, and
`that these statements fairly represented the financial condition
`of Qmax and were in conformity with GAAP and other
`accounting standards.
`
`The Review carried no auditors' opinion as to whether Qmax
`would continue as a going concern or not. In the Review,
`D & T also represented that it had previously examined, in
`accordance with GAAP, prior financial data for Qmax and that
`the information set forth in the 1987 Audit Report was fairly
`stated in all material respects. Although D & T apparently
`had qualified its opinion of Qmax's audited 1986 balance
`sheets, Qmax's 1987 Audit Report had received a “clean” or
`unqualified opinion from D & T, and the 1987 Audit Report
`was included in the Private Placement along with the interim
`financial statements and the Review Report. By letter dated
`August 18, 1988, D & T consented to the use of the Review
`Report in the Securities Purchase Agreement between Qmax
`and the Investors (the “Consent Letter”).
`
`*5 The Amended Complaint alleges that this Consent Letter
`constitutes a “subsequent events” review by D & T and made
`an express and implied representation that there had been no
`material changes in Qmax's financial position from the date
`of the Review Report to the date of the Consent Letter.
`
`An article dated July 18, 1988 in Barron's contained a
`statement from Representative John Dingell's oversight and
`investigation subcommittee which disclosed that on July 5,
`1988, the subcommittee sent subpoenas to certain generic
`drug companies in various states, including Bolar. On August
`4, 1988, the American Stock Exchange stopped trading of
`Bolar's stock amidst rumors that Bolar was in fact a subject
`of Dingell Committee's investigation, although it permitted
`trading to resume within a few days. Information about the
`rumors of investigation and about declines in the price of
`Bolar's shares appeared in a Reuter's release on August 2,
`1988 and Wall Street Journal on August 5, 1988.
`
`The offering materials for the Private Placement referred to
`these events in a separate short statement, which read in part:
`“Bolar's common stock resumed trading at 9:55 am on August
`5, 1988 opening at 19. Murray Koppelman telephoned Robert
`Shulman, President and Chief Executive Officer of Bolar at
`
`10:10 a.m. Mr. Shulman emphatically denied that Bolar had
`ever engaged in any of the rumored practices and denied,
`further, that Bolar is under investigation.” D & T alleges that
`rumors that Bolar was being investigated were circulated at
`least as early as the Barron's article dated July 18, 1988.
`
`The Notes were sold to the Investors through the Private
`Placement in August and September of 1988. After the
`closing of the sale of the Notes, D & T audited Qmax's
`financial statements for the year ending June 31, 1988, and
`on October 24, 1988 issued a qualified auditor's opinion
`expressing uncertainty as to Qmax's ability to continue
`as a going concern due to, among other problems with
`Qmax's inventory, an increase in the allowance for doubtful
`accounts for fiscal 1988 over that previously disclosed in
`the financial statements. The Investors' Amended Complaint
`alleges that the statements of accounts receivable, current
`assets and retained earnings in the condensed consolidated
`balance sheets were overstated by $315,000 attributable to
`the premature booking of a sale to Estee Lauder in fiscal
`year 1987 (the “Estee Lauder Sale”) and by the booking of
`$426,000 attributable to a transaction with Montreal Litho
`as a sale (the “Montreal Litho Sale”) when in fact it was a
`consignment.
`
`Although over $2 million in additional financing was raised
`through the sale of the Notes, Qmax filed for bankruptcy on
`August 3, 1989, shortly after it defaulted on the Notes. Qmax's
`Disclosure Statement (the “Disclosure Statement”) states
`that Qmax attempted two reorganizations after it entered
`bankruptcy, one based upon marketing KCL after receiving
`assurances received from Bolar concerning the “imminent”
`approval of KCL by the FDA, and the other based upon
`obtaining credit and producing drugs with the American
`Cyanamid Company using the Transpharma Plant. Both fell
`through, and the Qmax Disclosure Statement, filed June 26,
`1990, provides for the liquidation of the company.
`
`*6 D & T alleges that Shulman resigned as CEO and
`Chairman of Bolar on February 11, 1990. D & T also alleges
`that in a criminal information dated February 26, 1991, the
`United States alleged that Bolar had made false and fraudulent
`statements to the FDA in connection with certain ANDAs 2
`submitted by Bolar in 1984, distributing adulterated and
`misbranded drugs, and obstructing investigations of this. D
`& T alleges that Bolar pled guilty to all of the charges on
`March 22, 1191, and was sentenced to a $10 million fine.
`A criminal information against Shulman was filed dated
`October 10, 1991, alleging, inter alia, that Shulman had made
`
` © 2020 Thomson Reuters. No claim to original U.S. Government Works.
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`Case 1:18-md-02865-LAK Document 350-6 Filed 05/20/20 Page 6 of 247
`Ades v. Deloitte & Touche, Not Reported in F.Supp. (1993)
`Fed. Sec. L. Rep. P 97,768
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`false statements to the FDA. D & T alleges that Shulman
`signed a plea agreement with the United States Attorney for
`the District of Maryland and pled guilty to all of the charges
`against him in November of 1991.
`
`The Investors' Amended Complaint alleges that the Investors
`purchased the Notes in reliance upon statements and
`representations as to Qmax's financial condition, express
`and implied, made by D & T in its Review of Qmax's
`financial statements. The Investors allege that D & T knew
`or was reckless not to have known that Qmax was not an
`unqualifiedly going concern at the time D & T issued the
`Review Report, but that it did not reveal this to the Investors
`until it issued the qualified opinion with respect to Qmax's
`1988 audited financial statements. Essentially, the Investors
`allege that D & T's Review Report was issued so close in
`time to the qualified opinion (D & T consented to the use
`of the Review on August 18, 1988, and the audited 1988
`financial statements were published on October 24, 1988)
`that in preparing the Review D & T must have known, or
`recklessly disregarded, those warning signs about Qmax's
`financial status as a going concern which caused it to issue a
`qualified opinion some two months later.
`
`D & T's Third–Party Complaint alleges that Bolar failed to
`disclose its problems with the FDA to either D & T or the
`Investors, although it knew that Qmax depended upon the
`success of the Joint Venture and that, pursuant to the Bolar
`Letter, the Investors were relying upon the success of the
`Joint Venture. D & T alleges that Bolar knew, because of
`its problems with the FDA, that it would be impossible for
`Bolar to secure timely FDA approval for the Joint Venture's
`first product. D & T alleges that Eastlake represented Qmax
`to the Investors as a financially sound going concern, which
`would be able to repay the Notes from either the operating
`revenues derived from the Joint Venture or the proceeds
`of the Public Offering or both, although Eastlake had an
`obligation to conduct its own due diligence investigation
`into the business, operations and prospects of Qmax, and as
`agent of Qmax, Eastlake had access to material non-public
`proprietary information about Qmax's business. D & T also
`alleges that at some time prior to the 1987 Audit Report,
`Qmax gave Cronin warrants to purchase 110,000 shares of
`Qmax common stock. D & T also alleges that Cronin, a Vice
`President of Larson Mardon, signed two audit confirmation
`letters on July 22 and 29, 1987, and participated in two
`telephone calls with D & T personnel, on September 22, 1987
`and August 9, 1988. In the August 9th call, D & T alleges that
`Cronin confirmed that the sales to Montreal Litho were sales,
`
`not consignments, and that Cronin exercised his warrants
`immediately after this communications with D & T.
`
`Discussion
`
`I. Scope of Review on a Motion to Dismiss
`
`*7 Bolar alleges that D & T raises new arguments in its
`Memorandum of Law in Opposition to Motions to Dismiss
`which are not reflected in the pleading of the actual Third–
`Party Complaint. Second, Bolar alleges that this Court may
`not consider many of the documents referred to by D & T in
`its memorandum of law upon the theory that these documents
`are extrinsic to the Third–Party Complaint and should not be
`considered under Rule 12(b)(6), F.R.Civ.P.
`
`Despite Bolar's first allegation, all of D & T's legal theories
`of injury—which are properly set out in its memorandum of
`law and not presented as factual conclusions in its Third–
`Party Complaint—can be inferred from its factual allegations.
`The portions of D & T's memorandum of law which Bolar
`urges the Court to ignore are either allegations which are
`contained in the Third–Party Complaint, logical inferences
`that flow from these allegations, or legal theories based on
`those allegations.
`
`In its Third–Party Complaint, D & T need only make a short
`and plain statement of its claim, enough to give a defendant
`fair notice of what the plaintiff's claim is and the grounds
`upon which its rests. See Rule 8, F.R.Civ.P. The complaint
`need only “contain direct or inferential allegations respecting
`all the material elements necessary to sustain recovery under
`some viable legal theory,” Car Carriers, Inc. v. Ford Motor
`Co., 745 F.2d 1101, 1106 (7th Cir.1984), cert. denied, 470
`U.S. 1054 (1985) (citations omitted).
`
`While a claim for relief “may not be amended by the
`briefs in opposition to a motion to dismiss,”
`Telectronics
`Proprietary, Ltd. v. Medtronic, Inc., 687 F.Supp. 832, 836
`(S.D.N.Y.1988) (citations omitted), D & T's legal theories
`do not amend its complaint. D & T's Third–Party Complaint
`alleged that the Investors purchased their notes in reliance
`upon the Joint Venture and that the Joint Venture failed
`because the Joint Venture would never able to secure FDA
`approval for its products due to Bolar's alleged fraud. D &
`T's legal theories, which include all the elements of securities
`fraud and loss causation, can be inferred from the factual
`
` © 2020 Thomson Reuters. No claim to original U.S. Government Works.
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`Case 1:18-md-02865-LAK Document 350-6 Filed 05/20/20 Page 7 of 247
`Ades v. Deloitte & Touche, Not Reported in F.Supp. (1993)
`Fed. Sec. L. Rep. P 97,768
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`allegations set out in its Third–Party Complaint. The standard
`of review under Rule 12(b)(6) requires the court to accept as
`true all reasonable inferences which can be drawn from the
`Third–Party Complaint.
`
`Bolar's other argument is that D & T cannot rely on documents
`and affidavits which it did not attach as exhibits to its
`complaint. However, the purpose of the Rule is simply to
`give a plaintiff notice that extraneous documents may be
`considered by the Court in dismissing his complaint. If the
`plaintiff and not the party moving for dismissal submits the
`extraneous documents, notice to the plaintiff cannot be an
`issue. Second, the appropriate response to the extraneous
`documents is not to disregard them, as Bolar suggests, but to
`convert the motion for dismissal into a motion for summary
`judgment and invite the plaintiff to submit documents as
`well. 3 There is no reason to convert a motion to dismiss into a
`motion for summary judgment when (as here) it is the plaintiff
`who has incorporated the documents into his pleading by
`reference or by exhibit:
`
`Cosmas v. Hassett, 886 F.2d
` Cortec, 949 F.2d at 47;
`8, 13 (2d Cir.1989); Goldman v. Belden, 754 F.2d 1059,
`1065–66 (2d Cir.1985). A court may also take notice of public
`records, including SEC documents, for no serious question as
`to the authenticity of documents required by law to be filed
`with the SEC can exist, Kramer v. Time Warner, Inc., 937
`F.2d 767, 774 (2d Cir.1991).
`
`Finally, a court may review documents integral to the
`complaint even where they have been neither attached nor
`incorporated by reference simply because a plaintiff should
`not be able to evade a properly argued motion to dismiss by
`not submitting the offering materials to the court.
`I. Meyer
`Pincus & Assoc., P.C. v. Oppenheimer & Co., 936 F.2d 759,
`762 (2d Cir.1991). In Cortec, the Court of Appeals for the
`Second Circuit held that the district court, in dismissing the
`plaintiffs' complaint, could have considered documents which
`the plaintiffs either had in their possession or had knowledge
`of and relied upon in bringing their complaint:
`
`*8 it is for that reason—requiring
`notice so that the party against whom
`the motion to dismiss is made may
`respond—that Rule 12(b)(6) motions
`are ordinarily converted into summary
`judgment motions. Where plaintiff
`has actual notice.... the necessity of
`translating a Rule 12(b)(6) motion into
`one under Rule 56 is largely dissipated.
`
`Cortec Indus. Inc. v. Sum Holding, L.P., 949 F.2d 42, 48
`(2d Cir.1991), cert. denied, 503 U.S. 960, 112 S.Ct. 1561
`(1992). Accordingly, there is no reason to turn Bolar's motion
`for dismissal into one for summary judgment.
`
`Although this remains a motion to dismiss, it is still proper for
`the Court to consider the affidavits and documents before it
`in deciding Bolar's motion to dismiss. Rule 10(c), F.R.Civ.P.,
`provides: “Statements in a pleading may be adopted by
`reference in a different part of the same pleading or in another
`pleading or in any motion. A copy of any written instrument
`which is an exhibit to a pleading is a part hereof for all
`purposes.” In the Second Circuit, a complaint is deemed to
`include any written instrument attached to it as an exhibit or
`any statements of documents incorporated in it by reference.
`
`agreement,
`stock purchase
`The
`Bowles' offering memorandum, and
`the [stock purchase] warrant were
`documents plaintiffs ... had knowledge
`of.... [Plaintiffs] did not lack notice
`of those documents; these papers
`were
`integral
`to
`its complaint.
`Consequently, ... the district court ...
`could have viewed
`them on
`the
`motion to dismiss because there was
`undisputed notice to plaintiffs of their
`contents and they were integral to
`plaintiffs' claim.
`
`Cortec, 949 F.2d at 48.
`
`The situation in this case is a perfect analogy to Cortec: all the
`documents which Bolar maintains should not be considered
`are documents which D & T had in its possession and upon
`which it relied in filing its complaint. Bolar alleges the
`Court should not consider the offering documents, although
`in the Amended Complaint, the Investors individually list all
`the offering materials they alleged they relied on, including
`the Qmax Private Placement Offering Memorandum, the
`“Statement of Principal Risk Factors” compiled by Eastlake
`
` © 2020 Thomson Reuters. No claim to original U.S. Government Works.
`
`6
`
`

`

`Case 1:18-md-02865-LAK Document 350-6 Filed 05/20/20 Page 8 of 247
`Ades v. Deloitte & Touche, Not Reported in F.Supp. (1993)
`Fed. Sec. L. Rep. P 97,768
`
`(the “Risk Factors Statement”), the 1987 Audit Report, and
`the Review Report. 4 Bolar also alleges that this Court should
`not consider the affidavit of Edward Bentley submitted by
`D & T, although that affidavit merely helps to illustrate the
`logical inferences regarding D & T's allegations that Bolar
`and D & T jointly participated in the fraud alleged in the
`Third–Party Complaint. Finally, Bolar alleges that this Court
`should not consider Qmax's Chapter 11 Disclosure Statement,
`attached as Exhibit 2 to the Affidavit of D & T's counsel,
`David Tannenbaum, Esq. This Court make take judicial notice
`of the Disclosure Statement, as a public document filed in
`another court proceeding, in the same way that it may take
`judicial notice of the documents filed with the SEC. Under
`Cortec, notice to the pleader is the critical factor, and there
`can be no dispute that D & T has been on notice of the
`contents of all these documents and relied upon information
`in them in drafting its Third–Party Complaint. Cf. Wood v.
`Brosse U.S.A., Inc., 788 F.Supp. 772, 775 (S.D.N.Y.1992)
`(“[T]he Complaint does state that Wood did not have a copy
`of the agreement when the Complaint was drafted ... Wood's
`Complaint therefore will not be construed as incorporating
`the letter agreement at issue”). D & T either possessed or had
`access to all of these documents before it filed its Third–Party
`Complaint. D & T, therefore, is entitled to rely upon all the
`documents which it has submitted to the Court in connection
`with this motion.
`
`II. Right to Contribution under 10(b)
`
`*9 The existence of an implied right to contribution from
`joint tortfeasors for violations of the federal securities laws,
`which has been available to defendants in the Second Circuit
`since
`Globus, Inc. v. Law Research Service, Inc., 318
`F.Supp. 955, 957–58 (S.D.N.Y.1970), aff'd per curiam 442
`F.2d 1346 (2d Cir.), cert. denied, 404 U.S. 941 (1971), is now
`incontestible. In Musick Peeler & Garrett v. Employers
`Ins. of Wausau, 508 U.S. 286, 113 S.Ct. 2085 (1993), the
`Supreme Court resolved a split between the circuits (see
`Chutich v. Touche Ross & Co., 960 F.2d 721, 723 (8th
`Cir.1992)) and held that a right to contribution among joint
`tortfeasors existed under 10(b) and Rule 10(b)–5.
`
`Musick Peeler found that actions brought under two sections
`of the 1934 Act, §§ 9 and 18 (
`15 U.S.C. §§ 78i and 78r) to
`be sufficiently close in structure, purpose and intent to a 10b–
`5 action to serve as models for defining rights of contribution.
`
`Both Sections 9 and 18 contain nearly identical express
`provisions for such a right, each permitting a defendant to
`“recover contribution as in cases of contract from any person
`who, if joined in the original suit, would have been liable to
`make the same payment,”
`15 U.S.C. §§ 78i(e) and 78r(b).
`
`We think that these explicit provisions
`for contribution are an important,
`not an inconsequential, feature of
`the federal securities laws and that
`consistency requires us to adopt a
`like contribution rule for the right of
`action existing under Rule 10b–5....
`Those charged with liability in a 10b–
`5 action have a right to contribution
`against other parties who have joint
`responsibility for the violation.
`
`Musick Peeler, ––– U.S. at ––––; 113 S.Ct. at 2091–92.
`However, Musick Peeler applies to 10(b)–5 actions only:
`there remains no general right to contribution under federal
`law. See Northwest Airlines, Inc. v. Transport Workers, 451
`