In re Crazy Eddie Securities Litigation

Summary

The court reconsidered prior rulings concerning civil RICO claims, Section 12(2) Securities Act claims, a purported settlement memorandum, and cross-claims in securities litigation involving Crazy Eddie, Inc. It reinstated certain plaintiffs' RICO claims in light of intervening Second Circuit precedent, dismissed Crazy Eddie's own RICO claims and Peat Marwick's Section 12(2) claims, and granted leave to amend the plaintiffs' RICO claims for lack of particularity. The court held that the settlement memorandum bound the signatory plaintiffs Bernstein and Kaun but not the other plaintiffs or any uncertified class.

Holdings

1. A RICO pattern may be adequately alleged without an ongoing scheme having no demonstrable ending point when the alleged racketeering acts are neither isolated nor sporadic. The alleged multiyear securities, mail, and wire fraud scheme sufficiently alleged related and continuous racketeering activity under the Second Circuit's revised standard.
2. Crazy Eddie could not recover civil RICO damages for injury that was not proximately caused by the alleged predicate acts. The alleged loss of reputation, going-concern value, and creditworthiness resulting from public revelation of the fraud was too remote from predicate acts directed at shareholders and the investing public.
3. A plaintiff may pursue a civil claim under § 1962(d) when the defendant's agreement to violate § 1962(c) is followed by predicate acts in furtherance of the agreement that cause injury to business or property.
4. The RICO claims based on predicate acts sounding in fraud must plead those acts with at least the particularity required for the underlying securities-fraud claims. The complaint failed to identify adequately the documents or categories of documents containing the fraudulent statements, when they were made, and how each individual defendant participated and knew of the alleged fraud.
5. A person who does not satisfy the statutory-seller test cannot be held liable under Section 12 as an aider and abettor. Because Peat Marwick was not alleged to have sold, offered to sell, or solicited the sale of Crazy Eddie securities, the Section 12(2) claims against it were dismissed with prejudice.
6. The Memorandum of Understanding was an enforceable agreement in principle rather than an unenforceable agreement to agree. It bound the signatory plaintiffs Bernstein and Kaun to act in good faith to obtain a settlement on the stated terms, but it did not bind nonsignatory plaintiffs or a future plaintiff class.
7. Crazy Eddie retained the right to sue on its common-law cross-claims because the contemplated assignment to plaintiffs was conditional and the conditions, including class certification, had not been satisfied.

Questions Presented

1. Whether the alleged finite securities-fraud scheme adequately pleaded continuity and a pattern of racketeering activity under civil RICO after the Second Circuit's en banc decisions in Beauford and Indelicato.
2. Whether Crazy Eddie alleged an injury proximately caused by the defendants' predicate RICO acts sufficient to support a civil RICO claim.
3. Whether a civil RICO conspiracy claim under § 1962(d) may proceed when the injury results from predicate acts committed in furtherance of the agreement.
4. Whether plaintiffs' RICO claims satisfied Federal Rule of Civil Procedure 9(b).
5. Whether Peat Marwick could be secondarily liable under Section 12(2) of the Securities Act despite not being a statutory seller.
6. Whether the Memorandum of Understanding was enforceable and, if so, which plaintiffs were bound by it.
7. Whether Crazy Eddie retained standing to pursue common-law cross-claims that it had not yet assigned because conditions to the contemplated assignment had not occurred.

Disposition

other