source: Caselaw Access Project

author: KEVIN THOMAS DUFFY, District Judge.

license: Public Domain

text:
    Robert Saks MECHIGIAN, on Behalf of himself and all other investors similarly situated, Plaintiff, v. ART CAPITAL CORP., Marigold Enterprises, Inc., American Contemporary Art, Inc., Notar Services Corp., Harris Shapiro, Marilyn Goldberg, Harry Gurwitch, Joseph P. Notaro, Sigmund Rothschild, F. Peter Rose, Joseph Gandolfo and Harry J. Schaare, Defendants.
    84 Civ. 4617 (KTD).
    United States District Court, S.D. New York.
    June 25, 1985.

      Wayne O. Alpern, New York City, for plaintiff.
    Booth, Lipton & Lipton, New York City, for defendants Art Capital Corp. and Harris Shapiro; H. Adam Prussin, New York City, of counsel.
    Friedman & Shaftan, P.C., New York City, for defendants American Contemporary Art, Inc., Harry Gurwitch, Sigmund Rothschild and F. Peter Rose; Robert S. Groban, Jr., New York City, of counsel.
   MEMORANDUM & ORDER

KEVIN THOMAS DUFFY, District Judge.

Plaintiff, Robert Saks Mechigian (“Mechigian”), brings this suit against various defendants alleging the following eight causes of action: (1) conspiracy to fraudulently induce investment; (2) violation of state security laws; (3) violation of federal security laws; (4) fraud, misrepresentation, and deceit; (5) innocent misrepresentation; (6) negligence; (7) breach of fiduciary duty; and (8) breach of contract. Defendants, Art Capital Corporation (“ACC”) and Harris Shapiro, move to dismiss Counts Two and Three on the ground that, inter alia, these causes of action fail to state claims upon which relief can be granted. Defendants, American Contemporary Art, Inc. (“ACA”), Harry Gurwitch, F. Peter Rose, and Sigmund Rothschild, move to dismiss plaintiff’s complaint in its entirety. Plaintiff opposes the motions and cross-moves for class action certification.

Plaintiff alleges in pertinent part the following facts in his class action complaint. On June 30, 1978, plaintiff purchased for $137,000 a lithographic plate for “Track Relay,” an original artwork by defendant, Harry J. Schaare. Previously, “Track Relay” had been purchased from Schaare for $3,000 by the defendant promoters Shapiro, Marilyn Goldberg, and Gurwitch and their respective corporations, ACC, Marigold Enterprises, Inc., and ACA. These promoters arranged .for two art appraisers, defendants Rothschild and Rose, to render their assessments of the fair market value of “Track Relay.” At the June 30, 1978 closing, Rothschild and Rose stated that the current fair market value of “Track Relay” was between $165,000 and $175,000. The complaint suggests that the defendants advised the plaintiff that prints could be made from the original and could be sold for a profit. Plaintiff alleges that he was the victim of a deliberate conspiracy by all of the defendants to fraudulently induce him to purchase “Track Relay,” whose actual value was in fact substantially less than $137,000. In addition, plaintiff alleges that “numerous other members of the general public constituting the class herein, entered similar transctions [sic] with defendants and purchased similar investments in a similar manner.” Class Action Complaint at 11 28.

Following the purchase of “Track Relay,” plaintiff entrusted entirely to defendants the marketing of the artwork. Plaintiff alleges that other members of the proposed class similarly relied upon the marketing efforts of defendants to produce profits.

DISCUSSION

I. MOTIONS TO DISMISS

A. Securities Claims

Defendants move to dismiss plaintiff’s state and federal securities causes of action on the ground that “Track Relay” is not a security and therefore the securities laws are not implicated. Section 2(1) of the Securities Act of 1933, (the “1933 Act”), 15 U.S.C. § 77b(l), defines a security as, among other things, an investment contract. Plaintiff argues that his purchase of “Track Relay” meets the definition of an “investment contract” and thus constitutes the purchase of a security.

The elements necessary to a finding of an “investment contract” were set forth in Securities & Exchange Commission v. W.J. Howey Co., 328 U.S. 293, 298-99, 66 S.Ct. 1100, 1102-03, 90 L.Ed. 1244 (1946). The Supreme Court stated that “[a]n investment contract ... means a contract, transaction or scheme whereby a person [1] invests his money [2] in a common enterprise and [3] is led to expect profits solely from the efforts of the promoter or a third party____” Defendants argue that plaintiffs purchase does not constitute an investment contract because (1) it is not an investment in a “common enterprise” and (2) plaintiff was not led to expect his profits solely from the efforts of others. Because I find for the following reasons that plaintiffs purchase does not constitute an investment in a common enterprise, it is unnecessary to reach defendants’ second argument.

1. The Approaches

When determining whether an investment has satisfied the “common enterprise” element of the Howey test, courts are divided on which of two basic approaches to apply: “horizontal commonality” or “vertical commonality.” Courts which require “horizontal commonality,” require plaintiff to show a pooling of the investors’ interests in order to establish a “common enterprise.” See Salcer v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 682 F.2d 459, 460 (3d Cir.1982); Curran v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 622 F.2d 216, 222 (6th Cir.1980), aff'd on other grounds, 456 U.S. 353, 102 S.Ct. 1825, 72 L.Ed.2d 182 (1982); Hirk v. Agri-Research Council, Inc., 561 F.2d 96, 100-01 (7th Cir.1977). “Horizontal commonality” clearly does not exist under the present set of facts. Nowhere does plaintiff allege that any of his funds were pooled with other investors’ funds. Rather, plaintiff urges that this court adopt the second, more expansive definition of “common enterprise” and hold that “vertical commonality” is sufficient to satisfy this second prong of the Howey test. See Mordaunt v. Incomco, 686 F.2d 815, 817 (9th Cir.1982), cert. denied, — U.S. -, 105 S.Ct. 801, 83 L.Ed.2d 793 (1985); Securities and Exchange Commission v. Glenn W. Turner Enterprises, Inc., 474 F.2d 476, 482 n. 7 (9th Cir.), cert. denied, 414 U.S. 821, 94 S.Ct. 117, 38 L.Ed.2d 53 (1973).

There is a split in the courts that have applied the “vertical commonality” approach regarding precisely what is necessary to satisfy this standard. The courts applying the more restrictive definition state that “vertical commonality” exists where “the fortunes of the investor are interwoven with and dependent upon the efforts and success of those seeking the investment or third parties.” Securities and Exchange Commission v. Glenn W. Turner Enterprises, Inc., 474 F.2d at 482 n. 7 (9th Cir.), cert. denied, 414 U.S. 821, 94 S.Ct. 117, 38 L.Ed.2d 53 (1973). Thus, the Ninth Circuit appears to require merely that there be a “direct relation between the success or failure of the promoter and that of his investors.” Mordaunt v. Incomco, 686 F.2d at 817 (9th Cir.1982), cert. denied, — U.S. -, 105 S.Ct. 801, 83 L.Ed.2d 793 (1985). However, absent such a direct relation, the Ninth Circuit will not find “vertical commonality.” See Meyer v. Thomas & McKinnon Anchincloss Kohlmeyer, Inc., 686 F.2d 818, 819 (9th Cir.1982) (No “vertical commonality” in situations where “the promoter continued to profit through commissions even as the account lost money ... [and], had the account been successful, the promoter would not necessarily have shared the benefits because [the investor] could elect to withdraw profits as they accrued.”), cert. denied, 460 U.S. 1023, 103 S.Ct. 1275, 75 L.Ed.2d 495 (1983); Brodt v. Bache & Co., 595 F.2d 459, 461 (9th Cir.1978) (“Vertical commonality” does not exist where the brokerage house for a discretionary commodities trading account “could reap large commissions for itself and be characterized as successful, while the individual accounts could be wiped out.”)

A broader definition of “vertical commonality” seems to have been articulated by the Fifth Circuit which has held that “the requisite commonality is evidenced by the fact that the fortunes of all investors are inextricably tied to the efficacy of the [promoter’s efforts].” Securities & Exchange Commission v. Continental Commodities, 497 F.2d 516, 522 (5th Cir.1974) (quoting Securities & Exchange Commission v. Koscot Interplanetary, Inc., 497 F.2d 473, 479 (5th Cir.1974)). Thus, rather than requiring a tie between the fortunes of the investors and the fortunes of the promoters, as is necessitated under the restrictive definition of “vertical commonality,” the broader definition merely requires a link between the fortunes of the investors and the efforts of the promoters. Judge Robert J. Ward of this court has noted that the application of this broader definition of “vertical commonality” essentially eliminates the “common enterprise” prong of the Howey test because the only inquiry required is whether the success or failure of the investment is dependent upon the promoter’s efforts—i.e. the third prong of the Howey test. Savino v. E.F. Hutton & Co., Inc., 507 F.Supp. 1225, 1237-38 n. 11 (S.D.N.Y.1981). Because, as a practical matter, the broad definition of “vertical commonality” renders the second element of the Howey test meaningless, I must reject it as untenable. I fully concur with Judge Ward’s observation that “[assuming that the courts have been correct in fastening on Howey’s ‘common enterprise’ language as an independent component in the test for the existence of an investment contract, the Court has little doubt that the broad version of vertical commonality is inconsistent with Howey.” Id.

2. The Second Circuit

Although plaintiff asserts that “[i]t is well settled in the Second Circuit that vertical commonality alone is sufficient to create a common enterprise,” Plaintiff’s Memorandum Of Law In Opposition To Motions To Dismiss (“Plaintiff’s Memorandum”) at 17, he is unable to cite a single Second Circuit opinion in support of this proposition. Moreover, the cases which have addressed this issue in the Southern District are divided on whether “horizontal commonality” or “vertical commonality” is required, compare Darrell v. Goodson [1979-80] Fed.Sec.L.Rep. (CCH) ¶ 97,349 at 97,325 (S.D.N.Y.1980) (“horizontal commonality” or a “pooling of the monies of various investors____[is] necessary to the existence of a ‘common enterprise.’ ”) with Savino v. E.F. Hutton & Co., Inc., 507 F.Supp. at 1238 (“a ‘common enterprise’ should be found to exist within the meaning of Howey where there is vertical commonality ... ”); additionally, those courts which have approved of the “vertical commonality” approach are split as to whether the narrow or broad definition should be applied, compare Savino v. E.F. Hutton & Co., Inc., 507 F.Supp. at 1238 n. 11 (“the Court has little doubt that the broad version of vertical commonality is inconsistent with Howey ”) with Troyer v. Karcagi, 476 F.Supp. 1142, 1147-48 (S.D.N.Y.1979) (discretionary securities trading accounts which satisfied only the broad definition of vertical commonality held “sufficient to satisfy the common enterprise component of the Howey test.”)

3. Plaintiffs Purchase

Although plaintiff does not argue that his purchase satisfies the “horizontal commonality” test, he does apparently take the position that he meets the requirements of the narrow version of “vertical commonality.” Without passing on the issue of whether the narrow definition of “vertical commonality” is sufficient to meet the “common enterprise” prong of the Howey test, or whether “horizontal commonality” is required, I find that plaintiffs purchase does not satisfy the narrow definition of “vertical commonality” and can only possibly satisfy the broad definition of “vertical commonality.” Because I reject this broad definition of “vertical commonality,” I conclude that plaintiffs purchase of “Track Relay” did not constitute the purchase of a security.

With respect to the narrow version of “vertical commonality,” plaintiff alleges that “[t]he utilization of non-recourse financing based upon an artificially inflated purchase price created a commonality of interest between buyer and seller in the actual success of the venture.” Plaintiffs Memorandum at 17. However, I am simply unpersuaded by plaintiffs reasoning that mere payment through a non-recourse note should be sufficient to catapult an ordinary purchase of art into the purchase of a security with all the concomitant ramifications of such a purchase.

Plaintiff argues that payment on this type of note “amounts to profit-sharing.” Id. at 18. However, none of the cases cited by plaintiff held that a common enterprise existed because the plaintiff executed a non-recourse note. In fact, in the only Second Circuit case cited by plaintiff, the “common enterprise” issue was not even presented to the court. See Securities and Exchange Commission v. Aqua-Sonic Products Corp., 524 F.Supp. 866, 877 (S.D.N.Y.1981), aff'd, 687 F.2d 577 (2d Cir.), cert. denied, 459 U.S. 1086, 103 S.Ct. 568, 74 L.Ed.2d 931 (1982).

Plaintiff contends that because “the purchase price was artificially inflated over the actual value for tax purposes, and the long-term note did not reflect true economic value or consideration, payments thereon constitute actual profit to the seller, rather than a mere repayment of consideration.” Plaintiffs Memorandum at 19. Plaintiff asserts that “the promoters created the false illusion of a ‘pay-back’ of the investment, but which in substance amounts to a sharing of profits.” Id. His reasoning logically implies that good bargains will be purchases of artworks and poor bargains will be purchases of securities. I disagree. Assuming, as I must, that plaintiff’s assertion that the purchase price was artificially inflated is correct, I conclude that all that plaintiff has is a bad deal possibly resulting from a fraudulent scheme by defendants.

The non-recourse note merely represents the consideration plaintiff owes defendants for the “Track Relay” and does not represent a profit-sharing arrangement simply because plaintiff feels he has been cheated. In addition, the narrow definition of “vertical commonality” requires plaintiff to show not only that the defendants’ and his fortunes rise together, but also that their fortunes will fall together. See Savino v. E.F. Hutton & Co., Inc., 507 F.Supp. at 1237 (narrow theory of “vertical commonality” requires “that the investment manager’s fortunes rise and fall with those of the investor.” (citation omitted) (emphasis supplied)). Plaintiff does not contend that defendants’ fortunes will fall with his; apparently, defendants could do no worse than maintain their position after the purchase.

Thus, at best, plaintiff may only be able to satisfy the broad definition of “vertical commonality” espoused by the Fifth Circuit which merely requires the fortunes of the investor to be inextricably tied to the promoter’s efforts. Given that I reject this broad version of “vertical commonality,” plaintiff cannot be considered the purchaser of a security.

In sum, as plaintiff has not met either the “horizontal commonality” test or the narrow definition of “vertical commonality,” he has not satisfied the “common enterprise” prong of the Howey test for investment contracts. Accordingly, plaintiffs purchase of the “Track Relay” did not constitute the purchase of a security and therefore his second and third causes of action for state and federal securities laws violations are dismissed.

The expansion of the scope of the securities laws sought by the plaintiff herein seems to me to be unwarranted and even perhaps detrimental to the common good. In our mercantile economy, we should not try to turn every “thing” which might be purchased and sold into a “security.” If we did, every commercial contract would end up being enforced in the Federal Courts in what some plaintiffs and their attorneys would turn into class actions. Clearly this is not what was intended by Congress in passing the Securities laws.

B. Conspiracy

Plaintiffs first cause of action alleges conspiracy to fraudulently induce investment. The law in New York regarding the validity of a civil conspiracy cause of action is as follows:

conspiracy to commit fraud, standing alone, is not actionable and allegations and proof of conspiracy are important only to connect a defendant with the transaction and to charge him with the acts and declarations of his co-conspirators____

Ippisch v. Moricz-Smith, 1 Misc.2d 120, 144 N.Y.S.2d 505, 508 (Sup.Ct. Kings County 1955) (citations omitted), aff'd as modified, 1 App.Div.2d 968, 150 N.Y.S.2d 419 (2d Dep’t 1956); see also Friedlander v. National Broadcasting Co., 39 Misc.2d 612, 241 N.Y.S.2d 477, 481 (Sup.Ct. New York County 1963) (citations omitted), rev’d on other grounds, 20 App.Div.2d 701, 246 N.Y.S.2d 889 (1st Dep’t 1964) (“There is ... no cause of action as such for civil conspiracy. Allegations of conspiracy serve only to connect defendants with the acts of co-conspirators.”).

Although plaintiff acknowledges that New York does not recognize an independent tort of civil conspiracy, see Routsis v. Swanson, 26 A.D.2d 67, 270 N.Y.S.2d 908, 913 (1st Dep’t 1966), he explains that his allegation of a conspiracy “is a pleading device to connect the acts of one defendant with the acts of his co-defendants for joint and several liability.” Plaintiff’s Memorandum at 11. Under New York law, “whenever it becomes necessary to prove a conspiracy in order to connect the defendant with the fraud, no averment of the conspiracy need be made in the pleadings to entitle it to be proved.” Brackett v. Griswold, 112 N.Y. 454, 466-67, 20 N.E. 376 (1889).

Thus, plaintiff’s cause of action for civil conspiracy is dismissed because New York does not recognize such an independent cause of action. However, plaintiff may, of course, prove a conspiracy existed in order “to connect the acts of one defendant with the acts of his co-defendants.”

C. Fraud

Defendants also move to dismiss plaintiff’s fourth and fifth causes of action for fraud, misrepresentation, and deceit, and innocent misrepresentation on the ground that he has not complied with the specificity requirement of Fed.R.Civ.P. 9(b). Rule 9(b) provides in pertinent part: “[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.” The extent of plaintiff’s allegations of fraud is essentially contained in paragraph 41 of his “Class Action Complaint” wherein he states:

41. Defendants expressly misrepresented to MECHIGIAN, as one member of the class, that among other things:

(a) SCHAARE had prime recognition as an artist, produced artwork that was highly saleable, and had already received popular and commercial acceptance as an artist which made the potential for his market predictable,
(b) the current fair market value of SCHAARE’s “TRACK RELAY” was $165,000-$175,000,
(c) because of the acceptability of the subject matter of “TRACK RELAY” and SCHAARE’s widespread popularity as an artist, MECHIGIAN could anticipate significant profits from sales of reproductions,
(d) the master plate of “TRACK RELAY” was a valuable capital asset which had substantial economic value independent of any reproductions.

Although there are twelve defendants named in the complaint, plaintiff does not specifically allege the extent or nature of each defendant’s involvement in the fraud, but rather simply refers to “defendants” collectively. This is insufficient under Rule 9(b). At the least, plaintiff must allege the following:

(1) the nature of each individual defendant’s participation in the fraud, including the facts constituting scienter and an explanation of the defendant’s duty toward the plaintiff; (2) whether the defendant is being sued as a primary defendant or as an aider and abettor; and (3) as to allegations on information and belief, a statement of the source of the information and the reasons upon which the belief is founded.

Goldberg v. Meridor, 81 F.R.D. 105, 111 (S.D.N.Y.1979) (footnotes omitted).

In addition to failing to detail each defendant’s particular participation, plaintiff has also not given the time or place that the misrepresentations were made. In sum, plaintiff has not met the requirements of Rule 9(b). Accordingly, plaintiff’s fourth and fifth causes of action are dismissed without prejudice to plaintiff filing a properly pleaded amended complaint within twenty days of the filing of this decision. Such amended complaint should, at the least, include the following:

(1) precisely what statements were made in what documents or oral representations or what omissions were made, and
(2) the time and place of each such statement and the person responsible for making (or, in the case of omissions, not making) the same, (3) the content of such statements and the manner in which they misled the plaintiff, and (4) what the defendants “obtained as a consequence of the fraud.”

Todd v. Oppenheimer & Co., Inc., et al., 78 F.R.D. 415, 420-21 (S.D.N.Y.1978) (quoting Gross v. Diversified Mortgage Investors, 431 F.Supp. 1080, 1088 (S.D.N.Y.1977)).

D. Negligence

Defendants also seek dismissal of plaintiff’s negligence cause of action on the ground that defendants did not owe plaintiff a duty of care, a necessary element in any negligence action. See Donohue v. Copiague Union Free School District, 64 A.D.2d 29, 407 N.Y.S.2d 874, 877 (2d Dep’t 1978) , aff'd, 47 N.Y.2d 440, 391 N.E.2d 1352, 418 N.Y.S.2d 375, (1979) (elements of negligence cause of action are: “(1) the defendant owed the plaintiff a cognizable duty of care, (2) the defendant failed to discharge that duty and (3) the plaintiff suffered damage as a proximate result of such failure____”). Defendants do not argue in their papers that the remaining two elements of a negligence action have not been sufficiently pleaded.

Plaintiff alleges the following with respect to the duty of care element of his negligence cause of action:

Defendants owed MECHIGIAN and each member of the class a duty to use reasonable care to, among other things:
(a) select a suitable investment,
(b) fully and adequately disclose all risks and factors associated with the investment,
(c) not misrepresent or omit any material facts, to comply with applicable laws, regulations and requirements,
(d) act in accordance with accepted professional appraising standards and procedures,
(e) know or make reasonable efforts to ascertain material facts relevant to the fair market value and financial prognosis of such investment, and
(f) base their appraisals, predictions and prognoses upon objective considerations and existing market conditions.

Class Action Complaint at 1151.

Although it is unclear from plaintiff’s complaint precisely which defendants owed him a duty of care, in his Memorandum of Law, plaintiff’s counsel argues that such duty was owed by each defendant. For example, he alleges that, as professional appraisers, defendants Rothschild and Rose had a duty of care imposed by law. He states that:

[a]n appraiser retained to evaluate property to one which [sic] he knows or is reasonable [sic] foreseen to rely upon it, and makes an appraisal in a grossly negligently [sic] manner so as to inordinately overstate the value is liable in negligence [essentially because of the] independent legal duty [which] is imposed by the professional relationship of trust and confidence between the appraiser and the appraisee, based upon the apparent objectivity, disinterestedness, self-professed expertise and superior knowledge of the appraiser____

Plaintiff’s Memorandum at 98. In an analogous case, the First Department of the Appellate Division held:

If it be shown that a real estate appraiser, retained by a property owner to make an appraisal that he knows the owner will use to obtain financing, makes it in a grossly negligent manner so as to inordinately overstate the value, we are not ... prepared to hold the appraiser exempt from liability to the damaged financing party.

Chemical Bank v. National Union Fire Insurance Co., 74 A.D.2d 786, 425 N.Y.S.2d 818, 819 (1st Dep’t 1980). The court explained:

[if] it was within the contemplation of the appraiser and the owner when they contracted for the appraisal that a financing party would rely upon it and be persuaded by it, then, since those whose conduct was to be so governed would be a “fixed, definable and contemplated group” the appraiser would have assumed a duty of care for the benefit of those in the group.

Id. (citation omitted). In the instant matter, the defendant appraisers Rothschild and Rose were apparently retained by certain of the other defendants to provide appraisals of “Track Relay” to plaintiff. Given that it is possible that the appraisers and the other defendants contemplated that plaintiff would rely, at least to some extent, on the appraisals, Rothschild and Rose may have assumed a duty of care as to plaintiff.

With respect to the other defendants, plaintiff alleges that “[t]hose promoting and selling an investment to members of the public have a duty to act with reasonable care in making truthful representations.” Plaintiff’s Memorandum at 102. However, plaintiff provides absolutely no support for this proposition. Moreover, plaintiff’s arguments regarding the duties of brokers in securities transactions are unconvincing and inapplicable to this case as I have already dismissed plaintiff’s securities claims. In sum, I am unwilling to create a duty of care where no sound basis for doing so has been provided.

Accordingly, plaintiff’s negligence cause of action is dismissed as to all defendants except Rothschild and Rose.

E. Fiduciary Duty

Plaintiff's seventh cause of action alleges defendants breached their fiduciary duty to plaintiff. Defendants move to dismiss this claim on the ground that no fiduciary relationship existed as between defendants and plaintiff.

A fiduciary “relationship exists in all cases in which influence has been acquired and abused, in which confidence has been reposed and betrayed.” Penato v. George, 52 A.D.2d 939, 383 N.Y.S.2d 900, 904 (2d Dep’t 1976). This type of relationship exists not only in technical fiduciary situations, but also in more informal settings in which one places his trust in another. Id., 383 N.Y.S.2d at 904-05.

Plaintiff does not contend that his relationship with defendants could be categorized as a traditional or conventional fiduciary relationship. Rather, he argues that the defendants had a fiduciary duty to plaintiff “by virtue of their expertise and superior knowledge, their professional capacity as art dealers, art merchants, appraisers, broker/dealers, advisors and salesmen, their knowledge of plaintiff’s ... lack of knowledge and experience regarding art, and the close and confidential relationship of trust and goodwill the defendants matured.” Plaintiff’s Memorandum at 108. These allegations are insufficient to support a claim that a fiduciary relationship existed between the parties. Plaintiff has provided no support for the proposition that mere expertise in a matter creates fiduciary responsibilities, which is essentially the sum and substance of his argument. “[A] fiduciary relationship might be found to exist, in appropriate circumstances, between close friends or even where confidence is based upon prior business dealings.” Penato v. George, 383 N.Y.S.2d at 905 (citations omitted). No such relationship wherein confidence and trust are justifiably present has been alleged by plaintiff. There has been no allegation of past business dealings and I am unwilling to hold that in every case wherein someone with expertise is hired a fiduciary relationship is created. Accordingly, plaintiff’s cause of action for breach of a fiduciary duty is dismissed.

P. Contract

Defendants move to dismiss plaintiff’s breach of contract cause of action. Plaintiff alleges that defendants breached their contract to:

(a) sell an investment in strict accordance with reasonable and accepted standards, procedures and requirements applicable to such investments,
(b) provide expert and competent investment advice, appraisals and management services in accordance with professional standards and expectations,
(c) provide a good and valuable investment which had a fair market value equal to or greater than the purchase price and a realistic potential for reasonable profits, and
(d) deal competently and fairly in good faith.

Class Action Complaint ¶ 58. Although defendants contend in conclusory fashion that “Mechigian’s breach of contract allegations ... contradict the plain language of [the Memorandum and Purchase Agreement],” Memorandum of Law of Defendants ACA, Gurwitch, Rothschild, and Rose in Support of the Motion to Dismiss at 27, they cite to no specific contradictions in support of this allegation.

On a motion to dismiss the complaint, I must “accept as true all material factual allegations of the complaint and construe its terms in favor of the plaintiff.” County of Suffolk v. Long Island Lighting Co., 728 F.2d 52, 57 (2d Cir.1984). Because it does not “appear ... beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief,” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957) (footnote omitted), defendants’ motion to dismiss plaintiff’s contract claim is denied.

II. CLASS ACTION CERTIFICATION

Plaintiff moves pursuant to Fed.R.Civ.P. 23 for an order certifying that this action may proceed as a class action. The proposed class consists “of all former and present investors in the investment plan or plans conducted by defendants ____” Class Action Complaint 10. Alternatively, plaintiff asks that the determination whether to certify the proposed class be postponed until he has been able to engage in discovery on the issue. In order to prevail on his class certification motion, the plaintiff must establish the following six elements: (1) numerosity; (2) commonality of questions; (3) typicality of claims or defenses; (4) adequacy of representation; (5) predominance of common questions; and (6) superiority of class action. Moreover, it is plaintiff’s burden to convince the court that the requirements of Rule 23(a) are met. Greeley v. KLM Royal Dutch Airlines, 85 F.R.D. 697, 700 (S.D.N.Y.1980) (citation omitted). See Fed.R. Civ.P. 23(a); 23(b)(3). Plaintiff is unable to satisfy these six requirements.

Rule 23(a) provides that the class must be “so numerous that joinder of all members is impracticable.” In his affidavit in support of the Class Action Certification motion, plaintiff’s attorney, Wayne O. Alpern, Esq., states “plaintiff reasonable [sic] believes he is one of a large number of clearly defined and ascertainable investors across the country who purchased the investment from defendants during the same period on the basis of the same or similar documentation in a substantially similar manner.” Alpern Affidavit ¶ 8. However, this assertion that the numerosity requirement is satisfied is based merely on broad speculation and is insufficient to satisfy the numerosity test. Plaintiff’s claim is simply premised on the belief that because “[defendants [sic] documentation and the pattern of their conduct is clearly addressed to a large number of investors across the country ... [t]he class is so numerous that joinder of all members is impracticable.” Id. This is hardly sufficient evidence to support a finding that the numerosity requirement has been met. Indeed, even though plaintiff’s counsel has submitted well over one hundred pages of memoranda, reply memoranda, and rebuttal memoranda in support of his certification motion alone, he states that “[notwithstanding the foregoing request for class certification, however, plaintiff reasonably envisions that the Court may conclude that the above representations, particularly regarding the size of the class, are insufficient to satisfy the requirements of certification at this time.” Id. ¶ 11.

Aside from it being unlikely that plaintiff would be able to establish numerosity, it is also doubtful that plaintiff could show that there are common questions of law or fact. For example, there exists the possibility that different state laws will have to be applied for different members of the proposed class. See Simon v. Merrill Lynch, Pierce, Fenner and Smith, Inc., 482 F.2d 880, 883 (5th Cir.1973) (“[T]he geographical dispersion of the alleged representations would bring into issue various state common law standards. With no single law governing the entire class, common issues of law cannot be shown to warrant Rule 23 treatment.”). In addition, plaintiffs claims, which allege certain oral misrepresentations, may indeed be atypical of the claims of the other putative class members.

Plaintiff alternatively argues “that [the certification] determination is in most likelihood premature at this point in the absence of factual discovery establishing the prerequisites for class action status.” Id. K 13. I disagree. Even if, given time and further discovery, plaintiff were able to establish numerosity, commonality of questions, and typicality of claims or defenses (itself, a dubious proposition), plaintiff would not be able to satisfy the requirements of adequacy of representation, predominance of common questions, and superiority of class action, regardless of any amount of time given for discovery.

I note at the outset that the “requirement of adequate representation must be stringently applied because members of the class are bound unless they affirmatively exercise their option to be excluded, even though they may not be actually aware of the proceedings.” Albertson’s, Inc. v. Amalgamated Sugar Co., 503 F.2d 459, 463-64 (10th Cir.1974). When discussing what is required for one to be considered an adequate class representative, the Second Circuit has stated that “an essential concomitant of adequate representation is that the party’s attorney be qualified, experienced and generally able to conduct the proposed litigation. Additionally, it is necessary to eliminate so far as possible the likelihood ... that plaintiff has interests antagonistic to those of the remainder of the class.” Eisen v. Carlisle & Jacquelin, 391 F.2d 555, 562 (2d Cir.1968) (citations omitted). Courts are also to consider whether the plaintiff has sufficient financial resources to conduct the litigation. See, e.g., National Auto Brokers Corp. v. General Motors Corp., 376 F.Supp. 620, 637 (S.D.N.Y.1974), aff'd, 572 F.2d 953 (2d Cir.1978), cert. denied, 439 U.S. 1072, 99 S.Ct. 844, 59 L.Ed.2d 38 (1979).

Although plaintiff’s counsel has been unquestionably zealous in his prosecution of this matter to date, mere zeal is not sufficient to constitute “adequate representation.” Mr. Alpern has provided a summary of his background, see Plaintiff’s Reply Memorandum at 41 & n. 45; based on this, it is clear that in the limited time he has been an attorney, he has had absolutely no experience as an attorney for a class representative or as a participant in a class action in any respect. Moreover, given his presentation of the case thus far, I have serious doubts that he is qualified to represent the proposed class. Indicative of his inability to act as the attorney for the putative class is the fact that Mr. Alpern failed to move for class certification “[w]ithin sixty (60) days after the filing of [the class action complaint],” as required by Local Civil Rule 4(c). See Weinberg v. Lear Fan Corp., 102 F.R.D. 269, 272 (S.D.N.Y.1984) (“Counsels’ inattention to the class certification motion is a factor to be considered on the issue of whether the named plaintiffs will fairly and adequately represent the putative class.”).

In addition, it is also apparent that plaintiff’s interests are, at least in part, antagonistic to the interests of the rest of the class. For example, plaintiff’s position regarding the tax consequences resulting to all members of the proposed class from their purchases of art works from defendants is almost certainly antagonistic to the general position of the class. Plaintiff states the following:

as a matter of law, no member of the class is entitled to those [tax] benefits and, as a matter of fact, each investor either has or is almost certain to lose them ... [a]ny unchallenged tax benefits are clearly temporary and doomed ... [a]ny potential members of the class are kidding themselves if they believe those benefits will be sustained ... [a]ll class members have a potential tax liability....

Plaintiffs Reply Memorandum at 37.

Finally, plaintiff has not provided adequate support for his claim that he is financially capable to function as a class representative. Thus, plaintiff has not presented sufficient evidence to support a determination that he would be an adequate class representative and, in fact, the evidence presented mandates the opposite conclusion.

Accordingly, as plaintiff cannot satisfy the standards set forth in Rule 23, his motion for class certification is denied.

To summarize, plaintiffs securities, conspiracy, and fiduciary duty claims are dismissed in their entirety; plaintiffs fraud, misrepresentation, deceit, and innocent misrepresentation claims are dismissed without prejudice to his filing an amended complaint within twenty (20) days of the filing of this decision; plaintiff’s negligence claim is dismissed as to all defendants except Rothschild and Rose; defendants’ motion to dismiss plaintiff’s contract claim is denied; and, plaintiffs motion for class action certification is denied.

SO ORDERED.

      . The 1933 Act defines a security as:
      any note, stock, treasury stock, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, or, in general, any interest or instrument commonly known as a "security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
      The definition of a security in the Securities Exchange Act of 1934 (the “1934 Act”), 15 U.S.C. § 78a et seq., is "virtually identical” to the 1933 Act's definition. United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 847 n. 12, 95 S.Ct. 2051, 2058 n. 12, 44 L.Ed.2d 621 (1975). This is also essentially the definition under New York law. See N.Y.Gen.Bus.Law § 359-gl(b) (McKinney 1984).

      . Because plaintiffs second and third causes of action are being dismissed for failing to meet the second element of the Howey test, I need not address defendants’ alternative arguments that plaintiffs purchase did not satisfy the third element of the test and that plaintiff’s securities claims are time-barred. I do note, however, that plaintiffs purchase appears to be deficient with respect to the third element of the Howey test which requires that plaintiff expect profits solely or primarily from the efforts of others. Unlike the purchasers in Aqua-Sonic, the case plaintiff primarily relies on, plaintiff has not alleged nor does it appear that he can allege that he had no realistic alternative to relying on the promoters’ efforts for his profits. Indeed, in contrast to the situation in Aqua-Sonic where a particular sales agent was recommended to the purchasers and additional economic benefits existed for those who took advantage of the sales agency option, the defendants in this case did not recommend particular distributors in their sales materials and, instead, simply indicated that, if requested, a list of suitable distributors would be provided. Furthermore, plaintiff does not allege in his complaint that defendants ever represented that additional benefits would accrue to plaintiff if he enlisted the defendants to exploit and market the "Track Relay." Thus, this is not the case where the plaintiff’s reliance on the promoters "is precisely what the defendants must have expected from their behavior." Aqua-Sonic, 687 F.2d at 584.

      . Rule 23(a) provides:
      (a) Prerequisites to a Class Action. One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
      In addition to the above, the court must also find the following:
      that the questions of law or fact common to the members of the class predominate over any questions'affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.
      Fed.R.Civ.P. 23(b)(3).

      . As I have found that plaintiff is not an adequate class representative, I need not address the final two elements needed for certification, predominance of common questions and superiority of class actions. I do note in passing, however, that plaintiff cannot meet these requirements either. Individual issues will predominate the case, including, inter alia: (1) what was the price of each class member's particular purchase; (2) what was the actual value of each class member’s particular purchase; (3) what oral representations were made to each class member about his artwork; and (4) whether each class member actually relied on any of the alleged misrepresentations. Given the predominance of individual issues such as fraud, reliance, and damages, it is axiomatic that a class action is not the superior method of proceeding in this case.


author: SHADUR, District Judge.

text:
    NEWMAN-GREEN, INC., et al., Plaintiffs, v. Alejandro ALFONZO-LARRAIN R., et al., Defendants.
    No. 82 C 7933.
    United States District Court, N.D. Illinois, E.D.
    June 26, 1985.

      Rowe Snider, Michael Sher, Daniel Lesser, Friedman & Koven, Chicago, 111., for plaintiffs.
    Michael P. Connelly, John W. Patton, Jr., Connelly, Ruberry & Mustes, Chicago, 111., for defendants.
   MEMORANDUM OPINION AND ORDER

SHADUR, District Judge.

Newman-Green, Inc. (“NGI”) has charged Newman-Green de Venezuela (“NGV”) and NGV shareholders Alejandro Alfonzo-Larrain R., Irene Larrain de Ca-plan, Rafael Tudela, Alberto Tudela and William Bettison (collectively “Guarantors”) with violations of various agreements involving NGV’s manufacture and sales in Venezuela of NGI’s patented aerosol valves. NGI now moves under Fed.R. Civ.P. (“Rule”) 56 for summary judgment as to Count I of NGI’s Amended Complaint. For the reasons stated in this memorandum opinion and order, summary judgment is granted as to liability, with damages yet to be determined.

Facts

On February 27, 1985 (in the “Opinion,” 605 F.Supp. 793) this Court denied Guarantors’ motion for summary judgment as to Count I. Appendix A to this memorandum opinion and order comprises (1) the statement of facts from the Opinion, equally applicable here, and (2) the two letter agreements at the heart of this dispute.

Guarantors’ Contentions

In opposition to NGI’s motion, Guarantors rely in principal part on premises this Court has already rejected in the Opinion. From those flawed premises they purport to find the documents ambiguous. They then tender evidentiary material that assertedly shows:

1. It was the parties’ intention that the Guaranty Agreement not take effect until after SIEX approval of the License Agreement.
2. NGI is not entitled to payments from Guarantors because it “frustrated” SIEX’s approval of the License Agreement, thus preventing performance of the principal obligation.

Guarantors also address the measure of damages in case the Guaranty Agreement is determined to be enforceable against them. They propose two limitations on the extent of their liability:

1. Despite its 5% language, they say the Guaranty Agreement was meant only to supplement the anticipated 3% royalty provision of a modified License Agreement. According to them, Guarantors were to be liable only for the 2% difference between the amount of royalties permitted by SIEX and that desired by NGI.
2. For purposes of converting Guarantors’ obligation (measured in bolívares) to dollars, the applicable exchange rate is that prevailing on the date of judgment rather than the date of Guarantors’ breach of their agreement.

Rules of Construction

Illinois courts treat the meaning of an unambiguous contract as a question of law for the court. National Tea Co. v. Commerce & Industry Insurance Co., 119 Ill.App.3d 195, 199-200, 74 Ill.Dec. 704, 708, 456 N.E.2d 206, 210 (1st Dist.1983). Guarantors seek to avoid that rule (and hence summary judgment) by characterizing the Guaranty Agreement as ambiguous, and then by presenting evidence they say raises a factual issue as to the parties’ intentions when they put pen to paper.

But the threshold issue whether a contract is ambiguous is itself a question of law, not fact. Joseph v. Lake Michigan Mortgage Co., 106 Ill.App.3d 988, 991, 62 Ill.Dec. 637, 640, 436 N.E.2d 663, 665 (1st Dist.1982). For that purpose a contract is ambiguous only if it is “reasonably and fairly susceptible to more than one meaning.” Lenzi v. Morkin, 116 Ill.App.3d 1014, 1016, 72 Ill.Dec. 414, 416, 452 N.E.2d 667, 669 (1st Dist.1983). Ambiguity is not established by mere disagreement of the parties as to the contract’s meaning. Bank of Homewood v. Sjo, 113 Ill.App.3d 179, 183, 68 Ill.Dec. 817, 820, 446 N.E.2d 1214, 1217 (1st Dist.1983). And an unambiguous agreement “must be given a fair and reasonable interpretation by the courts based on a consideration of the language and provisions contained therein.” Arthur Rubloff & Co. v. Comeo Corp., 63 Ill.App.3d 362, 367, 20 Ill.Dec. 338, 342, 380 N.E.2d 15, 19 (2d Dist.1978).

Independent Viability of the Guaranty Agreement

Because the Confidentiality and Guaranty Agreements were executed at the same time in the course of the same transaction, they must be read and construed together. Thread and Gage Co. v. Kucinski, 116 Ill.App.3d 178, 182, 71 Ill.Dec. 925, 928, 451 N.E.2d 1292, 1295 (1st Dist.1983). And when they are read together, the Guaranty Agreement is not at all “reasonably and fairly susceptible to” the interpretation urged by Guarantors.

There is no question enforcement of the Confidentiality Agreement did not depend in any respect on enforceability of the License Agreement. On the contrary, unenforceability of the License Agreement was the very predicate for the existence of the Confidentiality Agreement:

It is understood that because of recent enacted legislation in Venezuela the license agreement will not become enforceable until such time as the provisions of the agreement are approved by the Venezuelan Government.
In consideration of the covenants herein entered into between the parties, it is agreed that pending the approval of said license agreement that Newman-Green, Inc. will undertake to provide to Newman-Green de Venezuela aerosol valve assembly machinery embodying the proprietary, confidential and technical information and know-how of Newman-Green, Inc.

Thus the purpose and effect of the Confidentiality Agreement were to provide NGV the benefits it had bargained for in the License Agreement—but to do so in the period of unknown duration before the License Agreement could become enforceable under Venezuelan law. In turn, those benefits triggered royalty burdens under the License Agreement—but burdens that could not be enforced directly under that Agreement so long as Venezuelan law alone controlled. Clearly the only rational reading of the Guaranty Agreement is as a means to assure NGI’s recovery of the corollary benefits defined by the License Agreement, corresponding directly to the benefits derived by NGV while SIEX approval of the License Agreement was pending.

Guarantors attempt to avoid reading the Guaranty and Confidentiality provisions in tandem by pointing out:

1. the Guaranty Agreement’s caption refers to “License Agreement”;
2. the text of the Guaranty Agreement is replete with references to the License Agreement; and
3. the Guaranty Agreement makes no reference to the Confidentiality Agreement.

But the cases applying the “contemporaneous execution” rule do not require the documents to make explicit reference to one another. Instead the common circumstances of their execution suffice to bind them into a single unit for contract construction purposes. And the Guaranty Agreement’s references to the License Agreement reinforce rather than undercut the plain reading given by the Opinion and this opinion. What the Confidentiality Agreement contemplated (and accomplished) was the creation of NGV performance of its License Agreement undertakings, to get NGI under way before formal SIEX approval had been obtained. Of course the natural way to define Guarantors’ responsibility—an obligation to match that NGV performance with the correlative royalties—was to state their responsibility in terms of the License Agreement’s formula and term. They did exactly that in the Guaranty Agreement:

In consideration for the execution of the license agreement dated June 13, 1974 from Newman-Green, Inc., Addison, Illinois to Newman-Green de Venezuela, the undersigned personally, individually and/or collectively agree that they guarantee the payment to Newman-Green, Inc. of an amount of money up to the 5% royalty set forth in the license agreement and for the period of time specified in the license agreement.

In much the same way, the Confidentiality Agreement also referred to the License Agreement to define the scope of the parties’ responsibilities, rather than repeating the terms and conditions of the other agreement simply to produce a self-contained document. Plainly Guarantors cannot say those references somehow made the enforceability of the Confidentiality Agreement dependent on enforceability of the License Agreement. No more reason exists for reading such an implied condition into the Guaranty Agreement.

Guarantors Mem. 2 says to interpret the Guaranty Agreement as requiring royalty payments before SIEX approval of the License Agreement would be “to postulate that the parties contemplated operating illegally in the event anything but the entire license agreement was approved.” But Guarantors’ asserted interpretation suffers from precisely the same asserted infirmity: Guarantors would still operate in violation of SIEX strictures, this time by ensuring royalty payments in excess of SIEX-approved levels.

Thus Guarantors are really foreclosed by the plain meaning of the unambiguous documents, before they even get into their asserted issues of fact. But the poverty of their position is reconfirmed by the fact their only evidence in support of their interpretation—the deposition testimony of Guarantor William Bettison, Jr. (“Bettison”)—would fail even were it admissible to raise a genuine issue of fact.

Although Bettison claimed his understanding was the Guaranty Agreement would not take effect before SIEX approval of the License Agreement, he:

1. specifically admitted the Guaranty Agreement contains no language supporting his interpretation (Dep. 217-19); and
2. also acknowledged Guarantors had neither communicated that understanding to NGI nor discussed the issue with NGI in any fashion (Dep. 228).

Thus Guarantors have produced no evidence at all of a mutual intent or understanding to exclude from the Guaranty Agreement any royalty obligations accruing before SIEX approval of the License Agreement.

In fact, Bettison’s testimony suggests the contrary. Bettison conceded NGI was adamant in its insistence on a 5% royalty (Dep. 137-39). NGI found the anticipated SIEX 3% royalty limitation utterly unacceptable, and Guarantors understood NGI would not perform even under the Confidentiality Agreement without an assurance the SIEX royalty limitation would be overcome (id.). NGI refused to allow NGV’s representative even to enter NGI’s factory for training under the Confidentiality Agreement until a satisfactory royalty arrangement was worked out (id. at 137-38).

It is patently absurd for Guarantors to maintain, in the face of NGI’s persistent concern over royalties, that NGI was willing to perform without any royalties for the indefinite period before SIEX approval. Parties opposing summary judgment are entitled to favorable factual inferences, but those inferences must be reasonable. Even were Guarantors able to overcome the first hurdle to permit introduction of their proposed evidence (and they have not), the inferences they seek to draw fail the reasonableness test.

NGI’s Asserted “Frustration” of SIEX Approval

Guarantors’ “frustration” argument grasps at straws. Although poorly articulated, it seems to assert (Def. Mem. 8-11):

1. After considerable back-and-forth, the parties reached a deal under which NGI would accept a SIEX royalty limitation of 3% in return for NGV’s agreement to make up the difference by adding 2% to the cost of goods purchased from NGI.
2. Thereafter SIEX offered to approve the license agreement with a 3% royalty limit.
3. NGI then reneged without justification.
4. Because NGI’s actions prevented NGV’s performance of the principal obligation, it would be unfair to subject Guarantors to liability under the Guaranty Agreement.

Even if the first three steps in that sequence were established, Guarantors have offered no authority to support their rather bizarre notion that NGI’s conduct should excuse Guarantors’ obligation under an unconditional guaranty of payment for the production NGV did complete. But that issue need not be reached, for Guarantors’ “factual” assertions are even more fanciful than their legal conclusion. Bettison’s very deposition testimony Guarantors offer in support of their frustration argument demonstrates:

1. NGI and NGV never agreed to compensate for lost royalties by adding 2% to the cost of goods sold to NGV (Dep. 216-19).
2. SIEX required a number of changes in the License Agreement besides a limitation on royalties.
3. Guarantors were aware, even before the agreement was presented to SIEX, that SIEX would require those other changes and those changes would be unacceptable to NGI (Dep. 202-04).

Accordingly Guarantors’ “frustration” contention is itself frustrated at every level.

Damage Issues

All the discussion to this point establishes NGI’s right to a summary judgment as to Guarantors’ liability on Count I. That however is not all the relief NGI seeks: It asks for what it calls “partial summary judgment” on that count, by which it means a determination Guarantors owe NGI not less than $189,771.16 (the claimed figure as of September 1, 1979).

That reflects a misperception of Rule 56(a) (emphasis added):

A party seeking to recover upon a claim ... may ... move ... for a summary judgment in his favor upon all or any part thereof.

That language does not permit the piecemealing of a single claim—in this case, the claim under the Guaranty Agreement— simply by dividing it into different time periods. See 10A Wright, Miller & Kane, Federal Practice and Procedure: Civil 2d § 2737, at 457 (1983); 6 (Pt. 2) Moore & Wicker, Moore’s Federal Practice ¶ 56.-20[3-2], at 56-1219 (1985); Biggins v. Olt mer Iron Works, 154 F.2d 214 (7th Cir.1946).

Under the circumstances this Court might well end this opinion here, leaving all damage-related issues to abide the event. But because the parties have briefed two of those issues and they will have to be dealt with in any case, this opinion goes on to resolve them.

1. Asserted 2% Limit on Guarantors’ Obligation

Guarantors contend their obligation was to make up only the 2% difference between the anticipated SIEX-imposed 3% royalty limit and the 5% demanded by NGI. That argument could be viewed as dependent on Guarantors’ ability to demonstrate the Guaranty Agreement was intended to be merely an adjunct to the License Agreement. But this Court has ruled the Guaranty Agreement took effect before approval of the License Agreement. On the suggested reading of Guarantors’ argument, the ruling as to effective date would also mandate a finding Guarantors were liable for the full 5% royalty payment.

Moreover, even given the intention Guarantors now assert, they must fail. Their contention is flatly inconsistent with the Guaranty Agreement’s unconditional language that Guarantors (emphasis added):

guarantee the payment to Newman-Green, Inc. of an amount of money up to the 5% royalty set forth in the license agreement and for the period of time specified in the license agreement.

Given that unequivocal language, all the principles of contract law prevent Guarantors from cutting back their liability by an unexpressed limiting condition.

2. Applicable Exchange Rate

Over the past few years the value of the bolivar vis-a-vis the dollar has dropped. That produces a frequently-seen kind of dispute that (like more typical - choice-of-law issues) lawyers usually first encounter in law school conflict of laws courses:

1. NGI contends the exchange rate to be used in converting Guarantors’ obligations into dollars is the rate prevailing on the date of Guarantors’ breach.
2. Guarantors argue for a “day of judgment” exchange rate.

Guarantors muddy the waters somewhat by their disingenuous assertion (Mem. 14) NGI is “rate-shopping” by arbitrarily choosing a date of breach that coincides with the bolivar’s strongest position against the dollar. In fact the bolivar-dollar exchange rate remained essentially unchanged from 1973 (well before NGV came into existence) until after July 1982 (over 2V2 years after NGI declared the agreements in breach and demanded payment) (Plaintiff’s Statement of Undisputed Facts ¶ 23, Pl.R.Mem. 13 n. 12). Thus no need exists to fix a precise date of breach (as distinct from choosing between “date of breach” and “date of judgment” as the appropriate standard).

Both sides agree the law in this area derives from Justice Holmes’ terse opinions in Hicks v. Guinness, 269 U.S. 71, 46 S.Ct. 46, 70 L.Ed. 168 (1925) and Deutsche Bank Filiale Nurnberg v. Humphrey, 272 U.S. 517, 47 S.Ct. 166, 71 L.Ed. 383 (1926). First Hicks applied the breach-day rule where a German firm owed a debt, stated in marks and payable in the United States, to an American creditor. Then Deutsche Bank (over a four-judge dissent, unlike the unanimous Hicks opinion) applied what is now termed the judgment-day rule where an American depositor sued in America to recover funds deposited in a German bank. One year later Justice Holmes delivered another brief missive (again for a unanimous Court) in Zimmermann v. Sutherland, 274 U.S. 253, 256, 47 S.Ct. 625, 626, 71 L.Ed. 1034 (1927), distinguishing between the two earlier cases on the ground (1) the Hicks debt “was payable in New York and subject to American law, so that upon a breach of the contract there arose a present liability in dollars” while (2) in Deutsche Bank the debt arose under German law and was payable in Germany.

Most recently In re Good Hope Chemical Corp., 747 F.2d 806, 810-11 (1st Cir.1984), cert. denied sub nom. Good Hope Chemical Corp. Creditors’ Committee v. Koerver & Lersch, — U.S. -, 105 S.Ct. 2328, 85 L.Ed.2d 845 (1985) discussed the disparate approaches that have evolved from Hicks and Deutsche Bank. One line of cases looks mechanically to the place of payment, applying the breach-day rule when payment is due in the United States and the judgment-day rule when it is due in a foreign country. By contrast, a second line of cases looks instead to the jurisdiction in which the cause of action arises, applying the breach-day rule if the claim arises under American law and the judgment-day rule if it arises under foreign law. Good Hope, 747 F.2d at 811 opted for the second approach.

Whichever of those formulations is applied here, the breach-day rule plainly comes into play:

1. As already indicated, the main reason the Guaranty Agreement is shorter than even a Holmes opinion is that it refers to the License Agreement for definition. License Agreement ¶ X specifies royalty payments are to be rósde in the United States in dollars. And if the Guaranty Agreement were looked at separately, it would lead to the same conclusion: Though Guarantors simply “agree that they guarantee the payment to [NGI],” the same sentence identifies NGI’s location as Addison, Illinois (the plain implication being payment is to be made there).
2. NGI’s action under the Guaranty Agreement clearly “arises under American law”: That Agreement contains express recitals subjecting Guarantors to Illinois jurisdiction and choosing Illinois law for interpretation (and, this Court has held, enforcement—see n. 3) of its terms.

Guarantors offer neither case law nor cogent arguments that would call for application of the judgment-day rule, when every relevant standard refers to Illinois.

Conclusion

There is no genuine issue of fact as to Guarantors’ liability on Count I, and NGI is entitled to a judgment as to liability on that Count as a matter of law. As for the amount of that liability, this Court has insufficient facts for a determination, but it rules Guarantors’ obligation in dollars is to be calculated according to the bolivar-dollar exchange rate in effect on the date of Guarantors’ breach.

APPENDIX A

MEMORANDUM OPINION AND ORDER

Newman-Green, Inc. (“NGI”) has charged Newman-Green de Venezuela (“NGV”) and NGV shareholders Alejandro Alfonzo-Larrain R., Irene Larrain de Ca-plan, Rafael Tudela, Alberto Tudela and William Bettison (collectively “Guarantors” ) with violations of various agreements involving NGV’s manufacture and sales in Venezuela of NGI’s patented aerosol valves. Guarantors now move under Fed.R.Civ.P. (“Rule”) 56 for summary judgment as to Count I of NGI’s Amended Complaint. For the reasons stated in this memorandum opinion and order, their motion is denied.

Facts

NGI, an Illinois corporation, has manufactured and sold patented aerosol valves for at least 30 years (NGI President Edward H. Green, Sr. Affidavit [“Green Aff.”] ¶ 1). During the early 1970’s NGI developed a business relationship with Guarantors out of a mutual desire to organize a Venezuelan company to manufacture and sell Newman-Green aerosol valves in Venezuela under an exclusive license from NGI. NGV was thus born. NGI owns 25% of NGV’s capital 'stock, and Guarantors own the rest either directly or indirectly-

Following negotiations in both Illinois and Venezuela (Pl.Mem. 4), on June 13, 1974 NGI and NGV entered into a License Agreement (Def.Ex. A). Because of then-recently-enacted Venezuelan legislation, the parties recognized the License Agreement would not become enforceable unless and until it was approved by SIEX, an administrative arm of the Venezuelan government (see PI.Ex. A). NGV and Guarantors did not want, to delay commencement of operations until approval was obtained (in which respect the lack of any SIEX track record made the timetable uncertain), while NGI was unwilling to risk any sale of its machinery or any provision of know-how to NGV absent further contractual assurances (Green Aff. ¶ 4). That gap was bridged by NGV’s and Guarantors’ tendering of two additional letter agreements:

1. NGV’s Confidentiality Agreement (App. A) ensuring protection of NGI’s trade secrets; and
2. Guarantors’ Guaranty Agreement (App. B) ensuring payment of royalties to NGI.

Both agreements were executed July 11, 1974. NGV president Alberto Tudela had drafted the Confidentiality Agreement, while it appears NGI attorney Perry Carvellas (Def.R.Mem. 9) had drafted the Guaranty Agreement.

After the Confidentiality Agreement and Guaranty Agreement were signed, NGI began performance by:

1. selling NGV valve-assembly machinery and valve components; and
2. providing technical training and assistance to NGV, both at NGI’s Illinois plant and NGV’s Venezuelan plant.

NGV began manufacturing and selling aerosol valves July 1, 1975. Between 1975 and 1980 NGV’s sales revenue from the valves exceeded $7 million.

SIEX never approved the License Agreement. In December 1977 SIEX indicated it would do so with substantial modifications (Def.Ex. 4), but NGI found the changes unacceptable and they were never made.

Despite its large sales volume, NGV never made any royalty payments to NGI. NGV apparently created a reserve fund for that purpose (Def.Ex. 5), but largely because of the SIEX problem the parties never worked out a mutually acceptable and legal way to transfer the funds to NGI (Def.Exs. 5, 7, 8).

On January 25,1979 NGI terminated and withdrew the still-unapproved License Agreement and also terminated its relationship with NGV. NGV continued to manufacture and sell the aerosol valves until May 1980. Because NGI never received royalty payments from NGV, NGI demanded royalty payments of approximately $350,000 from Guarantors pursuant to the Guaranty Agreement. Guarantors have refused, and NGI seeks enforcement of that obligation in Count I.

Guarantors’ summary judgment theory is that Venezuelan law controls the validity of the Guaranty Agreement and renders it unenforceable. NGI has not disputed the outcome under Venezuelan law, contending instead that Illinois law applies and renders the Guaranty Agreement enforceable.

Appendix A
July 11, 1974
Mr. Edward H. Green, President
Newman-Green, Inc.
57 Interstate Road Addison, Illinois 60101 U.S.A.
Re: License Agreement
Newman-Green, Inc.
Addison/N ewman-Green de Venezuela
Dear Mr. Green:
This letter is to confirm the recent discussions during which it was expressed that Newman-Green, Inc. Addison, Illinois and Newman-Green de Venezuela are desirous of entering into a license agreement whereby Newman-Green de Venezuela will be licensed to manufacture and sell Newman-Green aerosol valves in Venezuela. Pursuant to the discussions a license agreement was signed on June 13, 1974. It is understood that because of recent enacted legislatipn in Venezuela the license agreement will not become enforceable until such time as the provisions of the agreement are approved by the Venezuelan Government.
In consideration of the covenants herein entered into between the parties, it is agreed that pending the approval of said license agreement that Newman-Green, Inc. will undertake to provide to Newman-Green de Venezuela aerosol valve assembly machinery embodying the proprietary, confidential and technical information and know-how of Newman-Green, Inc. It is further agreed that Newman-Green, Inc., will provide additional proprietary, confidential and technical information and know-how of Newman-Green, Inc. to a designated employee of Newman-Green de Venezuela. The additional information is to be such that it will be sufficient to allow start-up and operation of the valve assembly machinery provided to Newman-Green de Venezuela. The amount and sufficiency of the additional information is to be determined by Newman-Green, Inc. It is understood and agreed that all of the aforesaid information is provided in confidence and under the terms and conditions of the license agreement.
It is further agreed, in the event that for any reason the license agreement is not approved by the Venezuelan Government, that the confidentiality provisions and the termination and/or cancellation provisions of the license agreement are in full force and effect.
This agreement is to be interpreted under the laws of the State of Illinois, U.S.A.
Signed at Caracas, Venezuela.
NEWMAN-GREEN DE VENEZUELA
By: Alberto Tudela
Alberto Tudela
President
Appendix B
July 11, 1974
Mr. Edward H. Green, President
Newman-Green, Inc.
57 Interstate Road Addison, Illinois 60101 U.S.A.
Re: Newman-Green, Inc. and Newman-Green de Venezuela License Agreement
Dear Mr. Green:
In consideration for the execution of the license agreement dated June 13, 1974 from Newman-Green, Inc., Addison, Illinois to Newman-Green de Venezuela, the undersigned personally, individually and/or collectively agree that they guarantee the payment to Newman-Green, Inc. of an amount of money up to the 5% royalty set forth in the license agreement and for the period of time specified in the license agreement.
For the purposes of this agreement the undersigned agree by virtue of the license agreement between Newman-Green, Inc. and Newman-Green de Venezuela that they are doing business in Addison, Illinois and designate as their individual and collective agent for service John E. Waghorne, Esq., Ace Avenue and Lake Street, Addison, Illinois 60101. The designation of agent is not revocable without the' written consent of Newman-Green, Inc., Addison, Illinois.
The agreement is to be interpreted in accordance with the laws of the State of Illinois.
The effective date of this agreement is July 11, 1974.
Signed at Caracas, Venezuela.
/s/ Rafael Tudela Rafael Tudela Apartado 59053
/s/ Alberto Tudela Alberto Tudela Apartado 68658
/s/ A. Alfonzo-Larrain A. Alfonzo-Larrain Apartado 1286
/s/ William Bettison William Bettison Apartado 1286
/s/ Irene Caplan Mrs. M. Caplan Apartado 1286
Rafael Tudela
Address:
Avda. Las Ciencias c/ Edison Edif. Edison, Piso 1 Los Chaguaramos Caracas.-
Alberto Tudela
Address:
Centro Plaza, Piso 7, Torre B Avda. Francisco de Miranda Los Palos Grandes Caracas.-
A. Alfonzo-Larrain R.
Address:
Edif. Aldemo, Piso 6 Avenida Venezuela, El Rosal Caracas.-
William L. Bettison
Address:
Edif. Helados Club Calle Las Mercedes, Chacao Caracas.-
Irene Larrain de Caplan
Address:
Calle vuelta del Zorro Quinta Escondida Valle Arriva Caracas.-

      . Though the text refers to those individual defendants as "Guarantors,” citations to their memorandum will take the more simplified form "Def. Mem.”

      . Rule 56 imposes on the party moving for summary judgment the burden of establishing the lack of a genuine issue of material fact. Korf v. Balt State University, 726 F.2d 1222, 1226 (7th Cir.1984). For that purpose the court must, in viewing the evidence, draw all reasonable inferences in the light most favorable to the nonmovants—here, Guarantors. Hermes v. Hein, 742 F.2d 350, 353 (7th Cir.1984). Because the earlier statement of facts was written on Guarantors' motion, this Court was then obliged to view the facts from a perspective most favorable to NGI. This Court's current rehearsal of that statement discloses its factual assertions are really undisputed by Guarantors (who incidentally failed to file the statement of genuine issues required by this District Court’s Local Rule 12(f) and are therefore foreclosed from asserting contested factual issues exist). Accordingly this Court, while relying on the same statement of facts as before, will draw all reasonable inferences in the opposite direction.

      . In light of the parties’ choice of Illinois law and for the reasons discussed at some length in the Opinion, 605 F.Supp. at 795-98, this opinion looks to Illinois law throughout. Guarantors have presented neither evidence nor argument, on the current motion, to counter this Court’s interpretation of the documents’ Illinois choice-of-law provisions as embracing all relevant questions, including enforceability of the Guaranty Agreement.

      . This is the well-known "contemporaneous execution” rule. True enough, unlike the usual situation in which the doctrine is applied, the parties to the contemporaneously-signed agreements here were not identical. But of course that makes no difference—indeed, by definition a guarantor must be a party different from the principal obligor. Here NGI’s insistence on the Guaranty Agreement (an insistence accepted by Guarantors) was a condition to its willingness to go forward with the Confidentiality Agreement. What the parties collectively have thus joined together, no one of them can put asunder—and that extends to Guarantors’ efforts to read the Guaranty Agreement in a vacuum.

      . Guarantors cite no authority that even suggests, let alone requires, that the documents must refer to one another.

      . This Court makes no finding whether one arrangement or another would be illegal (no such determination is necessary here).

      . All references to Bettison’s testimony relate to the first day of his deposition (July 30, 1984) and will take the form "Dep.—.’'

      . Given the author, that adjective might be viewed as tautological. Though Justice Holmes' penchant for brevity sometimes generated as many problems for later opinion writers as today's extended exegeses by the Supreme Court, a look at three Holmes opinions occupying a total of seven pages (!) in the United States Reports is bound to stimulate nostalgia for a return to the good old days.

      . In fact Deutsche Bank spoke not of the date of judgment but the date suit was filed. As Justice Holmes put it, 272 U.S. at 519, 47 S.Ct. at 166 (emphasis added):
      Obviously, in fact a dollar or a mark may have different values at different times but to the law that establishes it it is always the same. If the debt had been due here and the value of dollars had dropped before suit was brought the plaintiff could recover no more dollars on that account. A foreign debtor should be no worse off.
      And the last sentence in his opinion read (id. at 520, 47 S.Ct. at 167) (emphasis added):
      Here we are lending our Courts to enforce an obligation (as we should put it, to pay damages,) arising from German law alone and ought to enforce no greater obligation than exists by that law at the moment when the suit is brought.

      Were that in fact the operative rule, it is not clear just what the parties’ dispute would be, for no information has been provided as to the December 28, 1982 exchange rate. However, little logic would seem to support a lawsuit filing date, and this opinion (like others) will treat the alternatives in breach-day and judgment-day terms.

      . License Agreement fXIV provides if it becomes impossible to make payments in the United States, NGV is to convert the royalty payments to dollars and deposit them in a Venezuelan bank.

      . Perhaps needless to say, the fact NGV kept its books (including a purely internal bookkeeping reserve for the unpaid royalties) in terms of bolívares instead of dollars has absolutely no bearing on this issue.

      . Though the text refers to those individual defendants as "Guarantors,” citations to their memoranda and exhibits will take the more simplified form "Def. Mem.,” "Def. R. Mem.” and "Def. Ex.”

      . Although the parties' memoranda use the spelling "Guarantee Agreement,” the document itself bears no caption (it is in the form of a letter), and its body contains the word "guarantee” only once—used properly as a transitive verb. This opinion follows this Court’s customary usage of "guaranty” as a nouns(or adjectival noun) and "guarantee” as a transitive verb. See the listing in Webster’s Third New International Dictionary 1007 for “guarantee" as an alternate spelling of the noun (Webster’s indicates the "ee" ending, when used for the noun, is probably a bastardization of the correct "y" ending, the alteration stemming from a false analogy to such words as "assignee” and "lessee”).

      . Guarantors first point to Venezuela Civil Code Article 1.805:
      A guaranty may not be undertaken except in order to guarantee a valid obligation.
      Their Mem. 19 then cites various commentaries on Venezuelan law to the effect that a guaranty cannot stand as a separate obligation and is thus invalid whenever, as here, the principal obligation is invalid.