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CARALUZZI v. PRUDENTIAL SECS.

May 26, 1993

EDWARD A. CARALUZZI and PAMELA E. CARALUZZI, on their own behalf and on behalf of all other persons similarly situated, Plaintiffs,
v.
PRUDENTIAL SECURITIES, INC., Defendant.


MORAN


The opinion of the court was delivered by: JAMES B. MORAN

Plaintiffs Edward Caraluzzi and Pamela Caraluzzi (the Caraluzzis) filed this action against defendant Prudential Securities, Inc. (Prudential) under the RICO statute, 18 U.S.C. § 1961, et seq.. Plaintiffs claim that the monthly client statements sent to them by defendant misrepresented, or omitted to state, the true value of certain limited partnership and other direct investments. In addition, plaintiffs allege common law claims for breach of fiduciary duty, fraud and negligent misrepresentation, and statutory consumer fraud claims under the laws of the states of New York, Illinois, Texas, Connecticut and California. This court has both pendent and diversity jurisdiction over the Caraluzzis' state law claims. Before us now is defendant's motion for dismissal. For the reasons stated below, defendant's motion is granted.

 FACTS

 In or about September 1986 plaintiffs, as joint tenants, purchased through defendant 1,250 limited partnership units in Summit Tax Exempt L.P. II (Summit II) at $ 20.00 per unit, for a total purchase price of $ 25,000. In addition, in or about September 1986 Pamela Caraluzzi, individually, purchased through defendant 1,250 units in Summit II at $ 20.00 per unit, for a total purchase price of $ 25,000. In or about June 1987 plaintiffs jointly purchased through defendant 1,250 limited partnership units in Summit Tax Exempt L.P. III (Summit III) at $ 20 per unit, for a total purchase price of $ 25,000. At approximately that time Pamela Caraluzzi, individually, purchased from defendant 500 units in Summit III at $ 20.00 per unit, for a total purchase price of $ 10,000. Prudential acted as the broker for the syndication of Summit II and Summit III and, according to plaintiffs, was also acting as plaintiffs' financial advisor.

 The Caraluzzis bring this action on behalf of themselves and all other residents of the United States who purchased limited partnerships and other direct investments through Prudential. The Caraluzzis allege that beginning in or about 1981, and continuing to the present, the defendant acted as a broker and advisor to thousands of people in selling limited partnership interests and other direct investments.

 After plaintiffs purchased their limited partnership interests and other direct investments, defendant provided them with monthly client statements that included, among other things, the price and value of the clients' securities and the portfolio's net worth. Plaintiffs allege that up to and including the monthly period from November 1, 1991 through November 30, 1991, Prudential represented that the then current value of the limited partnership and other direct investments were equal to the price originally paid for those investments. The "value" amount was used by Prudential in computing the net worth figure shown on the statements.

 Next to the amount shown in the price column on the statements is the sign "#." For the statements beginning for the month ended October 31, 1986 through the month ended February 28, 1989, the "#" sign next to the price referred to a legend on the face of the statements. *fn1" Beginning with the month ended March 31, 1989, the legend for "#" appeared on the back of the statements. *fn2" Beginning in December 1991, the format of the client statements was changed to report the direct investments in a separate section of the statements. In addition, the value of the direct investments were excluded from the net worth section of the client statements. Beginning in December 1991 (and continuing to the present), that section contains a similar legend on the face of the statements which states that "face amounts do not represent current market value." See plf. am. cplt. exh. B.

 Plaintiffs allege that the representations as to the value of the limited partnership and other direct investments were false and materially misleading, and that defendant omitted to state the true value of those interests. Plaintiffs assert claims under § 1962(c) of RICO, state common law claims for breach of fiduciary duty, fraud and negligent misrepresentation, and statutory claims under the consumer fraud acts for the states of New York, Illinois, Texas, Connecticut and California.

 DISCUSSION

 A. Preliminary Issues

 There are several preliminary issues that this court must address before moving on to the substance of this motion. The first matter concerns claim-splitting. Defendant maintains that the current action is related to a pending action before Judge Grady. *fn3" After defendant's motion to dismiss was filed, Judge Grady considered the issue of relatedness and has determined that the two actions should not be combined. This court need not further address the issue of claim-splitting.

 The second preliminary matter concerns whether this court should consider defendant's motion to dismiss before addressing the class certification question. While generally the class certification issue is decided before turning to the merits of the case, Rutan v. Republican Party of Illinois, 868 F.2d 943, 947 (7th Cir. 1989), aff'd in part and rev'd in part, 497 U.S. 62 (1990) (rev'd on other grounds), there are exceptions to the rule. In Illinois State Rifle Association v. State of Illinois, Judge Shadur addressed the motion to dismiss before deciding the class certification issue. 717 F. Supp. 634 (N.D.Ill. 1989). Judge Shadur noted that because "the motion to dismiss was filed as defendants' opening move," and because the court viewed the complaint as "facially suspect in more than one respect that appeared incurable," the dispositive motion could be considered first. Id. at 639 n.12. Judge Shadur further pointed out that if the class certification issue was addressed first, there could be a substantial delay in the litigation. Id. Other courts have followed Judge Shadur's rationale and, in certain circumstances, have moved directly to the motion to dismiss before deciding the class certification issue. Smiley v. City of Chicago, 1991 U.S. Dist. Lexis 11011 (N.D. Ill. Aug. 1, 1991); McCann v. City of Chicago, 1990 U.S. Dist. Lexis 5448 (N.D.Ill. May 3, 1990). Here defendants have chosen to move for dismissal. And, there has already been a significant delay in this case in order to address the relatedness issue. Furthermore, it is relevant that neither party has objected to nor raised concerns about this court's consideration of defendant's motion to dismiss before deciding the issue of class certification. Of course only the named plaintiffs are bound by this decision. If another plaintiff chooses to sue, this court's decision will be persuasive, "rather than the bar as to all class members that such a decision would provide if rendered after class certification." Illinois State Rifle Ass'n, 717 F. Supp. at 639 n.12.

 The final preliminary issue concerns defendant's argument that many members of the class have already settled actions against Prudential for their purchases of Summit limited partnership interests. Although this court has not yet certified the class, we note that the individuals who have already settled their claims with Prudential are precluded from further ...


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