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HARRIS TRUST & SAV. BANK v. SALOMON BROS.

December 24, 1992

HARRIS TRUST AND SAVINGS BANK, not individually but solely as Trustee for the Ameritech Pension Trust; AMERITECH CORPORATION; and JOHN A. EDWARDSON, Plaintiffs,
v.
SALOMON BROTHERS, INC. and SALOMON BROTHERS REALTY CORP., Defendants.



The opinion of the court was delivered by: MARVIN E. ASPEN

MEMORANDUM OPINION AND ORDER

 MARVIN E. ASPEN, District Judge:

 Harris Trust, as trustee for Ameritech Pension Trust ("APT"), Ameritech Corporation ("Ameritech") and John A. Edwardson ("collectively "plaintiffs") bring this ten-count complaint against Salomon Brothers Inc. and Salomon Brothers Realty Corporation (collectively "Salomon") alleging violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1968, violations of various provisions of the Employee Retirement Income Security Act ("ERISA"), and several state law claims. Salomon now moves to dismiss APT's complaint in its entirety for failure to state a claim. For the reasons set forth below, we deny the motion in part and grant it in part.

 I. Standard of Review

 In considering a motion to dismiss, the court accepts the factual allegations of the complaint as true. See Hughes v. Rowe, 449 U.S. 5, 10, 101 S. Ct. 173, 176, 66 L. Ed. 2d 163 (1980) (per curiam) (citing Cruz v. Beto, 405 U.S. 319, 322, 92 S. Ct. 1079, 1081, 31 L. Ed. 2d 263 (1972). Furthermore, unless it "appears beyond doubt that the plaintiff can prove no set of facts in support of his claims which would entitle him to relief, a court should not grant a motion to dismiss. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102, 2 L. Ed. 2d 80 (1957). Accordingly, the court views the well-pleaded complaint's allegations, as well as reasonable inferences therefrom, in the light most favorable to the plaintiff. See Balabanos v. North Am. Invest. Group, Ltd., 708 F. Supp. 1488, 1491 n.1 (N.D. Ill. 1988) (citing Ellsworth v. City of Racine, 774 F.2d 182, 184 (7th Cir. 1985), cert. denied, 475 U.S. 1047, 89 L. Ed. 2d 574 , 106 S. Ct. 1265 (1986).

 Ameritech's Asset Management Committee has had general authority for managing assets of the company's pension plan and for appointing investment managers to manage its assets. For the relevant time periods, Ameritech appointed National Investment Services of America, Inc. ("NISA") to manage APT's Dedicated Portfolio. In addition, since 1984, Salomon had acted as a broker-dealer and investment advisor to APT in numerous financial transactions. Beginning in the fall of 1986 and through 1987, Salomon recommended a number of investments for APT's Dedicated Portfolio.

 A. Fee Agreement I

 In July, 1987, Motels of America, Inc. ("MOA") purchased certain properties pursuant to financing set up by Salomon involving the issuance of mortgage notes ("Portfolio I"). At the closing of these acquisitions, Salomon received fee participation rights in Portfolio I ("Fee Agreement I"). Under Fee Agreement I, Salomon would receive certain rights of participation in Portfolio I's net cash flow, sale or refinancing proceeds, and property appreciation. These fees were only payable after MOA satisfied obligations to mortgage noteholders.

 In October, 1987, Salomon offered to sell APT its interest in Fee Agreement I. Prior to this transaction, and each of the four relevant transactions between Salomon and APT, Salomon provided APT with a confidential offering memorandum and a copy of the fee agreement and assignment. *fn1" The offering memoranda contained appraisals and projections of fees payable under the fee agreements. APT alleges that the memoranda did not contain any meaningful analysis of the risks involved in the purchase of an interest in the fee agreements, nor were the projections accurate. On October 28, 1987, APT purchased 95% of Salomon's interest in Fee Agreement I. Salomon retained a 5% interest for the purpose of monitoring the investment performance of MOA on behalf of APT.

 B. Fee Agreement II

 In March 1988, MOA acquired some additional properties pursuant to a financing plan put together by Salomon involving the issuance of mortgage notes ("Portfolio II"). At the closing of Portfolio II, Salomon and MOA entered into a fee agreement similar to Fee Agreement I ("Fee Agreement II"). Salomon approached APT to purchase an interest in Fee Agreement II. On April 28, 1988, APT purchased 100% of Salomon's interest in Fee Agreement II.

 C. Fee Agreement III

 In August, 1989, MOA acquired still more properties pursuant to another financing plan devised by Salomon involving the issuance of mortgage notes ("Portfolio III"). MOA and Salomon entered into another fee agreement ("Fee Agreement III"). In the fall of 1989, Salomon approached APT about purchasing an interest in Fee Agreement III. The offering memorandum Salomon furnished APT, however, failed to disclose that since July 1989, the financial performance of Portfolio III had been deteriorating and MOA management was concerned that Portfolio III would not perform as projected in the memorandum. Through December, Salomon continued to have conversations with MOA regarding Portfolio III's adverse developments. That month, Salomon learned from MOA that the Portfolio III market had been misread, that costs ...


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