bank account statements were sent to her home address. (N.T. 168 (7/24/81)). She and DeAzoulay jointly signed checks from the GAL bank account. (Ex. P-4). She used GAL monies to pay her personal American Express bills and to purchase for her use and that of DeAzoulay two Cadillac Sevilles. (N.T. 56, 58 (7/23/81); 122-23 (9/24/81)). This personal use of GAL money and participation in GAL activities evidences Goodman's active control of her investment. She did not invest money expecting profits solely from the efforts of others. Goodman has not established the purchase or sale of a security because in economic reality she invested in GAL as a joint venturer.
Goodman's actions are those of an active, knowing, perhaps foolhardy, venturer, not of a "naive widow" victimized by a "swindle." (Memorandum in Support of Plaintiffs' Motion for a Preliminary Injunction).
If anything, the parties victimized each other. Goodman, bequeathed substantial assets in trust by her deceased husband, led defendants to believe she had many real estate investments and assets sufficient to be the financial support of their venture; DeAzoulay and Levin misunderstood the limitations on plaintiffs' financial resources because of Goodman's conduct.
Makavitt's investment, unlike Goodman's, was premised on the managerial or entrepreneurial efforts of others, so that Makavitt could establish a purchase or sale of a security. But there is simply no evidence that Levin made any misrepresentation to her. She testified that she spoke to neither Levin nor DeAzoulay prior to the $ 20,000 transfer to Goodman in January, 1981 (N.T. 13, 17 (7/23/81)). Prior to her $ 80,000 transfer in May, 1981, she testified that she clearly remembered several conversations with DeAzoulay by telephone and their substance (N.T. 21 (7/23/81)), but she could not clearly remember either speaking to Levin or the substance of such a conversation if indeed it took place. (N.T. 35 (7/23/81)). Without evidence of misrepresentations, her claim against Levin for securities fraud must fail.
Makavitt's common law fraud claim suffers a similar defect. "The basic prerequisite of an action in deceit for fraudulent misrepresentations is that the deceiver shall knowingly make a false statement, intending the actor to rely upon it to his detriment ...." Linda Coal and Supply Co. v. Tasa Coal Co., 416 Pa. 97, 204 A.2d 451, 454 (1964); accord, U. S. Gypsum Co. v. Schiavo Bros., Inc., 450 F. Supp. 1291 (E.D.Pa.1978); aff'd in part and rev'd in part on other grounds, 668 F.2d 172 (3d Cir. 1981). Fraud or intent to defraud must be proven by evidence that is clear, precise and convincing. Beardshall v. Minuteman Press International, Inc., 664 F.2d 23 (3d Cir. 1981). No such evidence was adduced by Makavitt.
Makavitt argues that Levin is liable as an aider and abettor of DeAzoulay's misrepresentations. (Supplemental Memorandum No. 2 at 15). However, assuming arguendo that DeAzoulay committed a securities violation, there is little evidence that Levin had knowledge of DeAzoulay's actions and "knowingly and substantially" participated in the wrong-doing. Monsen v. Consolidated Dressed Beef Co., 579 F.2d 793, 799 (3d Cir.), cert. denied sub nom., First Pennsylvania Bank N. A. v. Monsen, 439 U.S. 930, 99 S. Ct. 318, 58 L. Ed. 2d 323 (1978). The testimony of Goodman on which Makavitt relies in support of her aiding and abetting theory (Plaintiffs' Supplemental Memorandum No. 2 at 15-20), is inconclusive as to Levin's participation, if credible.
Makavitt did remember having telephone conversations with DeAzoulay before she wired $ 80,000 to the a GAL bank account. (N.T. 11, 13 (7/23/81); N.T. 347 (11/1/81)). She claims DeAzoulay stated that the New Jersey condominiums were presold or under contractual commitment and that she would realize a $ 12,000 per year return on her investment. (N.T. 11, 15 (7/23/81)). Her probability of success on the merits against DeAzoulay is also enhanced by the fact that DeAzoulay invoked his Fifth Amendment privilege during a discovery deposition with respect to the disposition of $ 25,000 which he withdrew from the PNB bank account.
(See also, N.T. 348-60 (11/1/81)). By Order dated November 16, 1981, the court granted plaintiffs' motions for sanctions and precluded DeAzoulay from introducing any evidence at trial relating to matters as to which he invoked the Fifth Amendment.
However, Goodman appears to be equally culpable in these matters. It was Goodman who told Makavitt that she was enthused about the Margate property (N.T. 45 (7/23/81)); it was Goodman who introduced DeAzoulay to Makavitt before their first telephone conversation (N.T. 68 (7/23/81)); and DeAzoulay denies that Goodman told him about Makavitt's initial $ 20,000 "investment." (N.T. 360 (10/1/81)). This denial is consistent, at least, with the fact that it was Goodman alone who induced Makavitt to wire that money to Goodman's personal bank account. (N.T. 13, 17 (7/23/81)).
It is undisputed that Levin requested that Goodman obtain her own lawyer to draft a shareholder agreement regarding the activities of GAL and a loan agreement regarding the investment of Makavitt. (N.T. 88, 89 (9/23/81); 443-44 (10/1/81)). Sending plaintiffs to a lawyer of their own choice for their protection is clearly inconsistent with plaintiffs' allegation that Levin conspired to defraud.
In evaluating credibility, the court finds Goodman least credible and Makavitt most credible. Levin, while perhaps not telling the entire story, seemed to conceal less than DeAzoulay and Goodman. In light of plaintiff Goodman's non-responsive and evasive testimony on both direct and cross-examination, it cannot be said that the probability of proving securities or common law fraud at trial is "reasonable."
2. Irreparable Harm
Neither Makavitt nor Goodman has shown that irreparable harm would flow from the failure to freeze defendants' assets pendente lite. Plaintiffs assert that because GAL is insolvent, such a freeze is necessary to ensure satisfaction of their prospective judgment. (Plaintiffs' Supplemental Memorandum No. 2). This position is without substantial support in the record. GAL owns bayside properties in Margate, New Jersey, in which its equity is in excess of approximately $ 60,000. These assets constitute protection for the plaintiffs, particularly Makavitt.
Also, plaintiffs have made no showing that Levin, the only defendant with assets, is in the process of liquidating or otherwise transferring his personal assets in fraud of creditors or fleeing the jurisdiction. The Court of Appeals has stated that "(t)he injury contemplated by the denial of a preliminary injunction must be actual and of serious consequence, not merely theoretical." A. L. K. Corp. v. Columbia Pictures Industries, Inc., 440 F.2d 761, 764 (3d Cir. 1971). The record does not support injury to plaintiffs of an "actual and serious consequence."
The court is obligated to take into account the possibility of harm to the defendants if their personal assets were to be frozen by court order. See, Constructors Association, supra at 815. In this case, such an order would hinder Levin's ability to pursue his real estate business interests and DeAzoulay's ability to seek employment. Both Levin and DeAzoulay have asserted counterclaims for securities law violations and fraud against Goodman. Levin has also filed a third-party complaint against Goodman for contribution or indemnity should he be found liable to Makavitt. In this posture, it is hardly just to freeze the personal assets of either DeAzoulay or Levin.
The parties have not brought to the court's attention the possibility of harm to other interested persons from the grant or denial of this motion; this case does not seem to implicate any public interest. Id. Balancing the above factors, as the court must do on a motion for preliminary injunction, we find that the plaintiffs' showing is not sufficient to order a restraint on defendants' use or disposition of personal assets.
B. GAL Assets
Plaintiffs also move the court to appoint "a trustee to safeguard the assets of the corporation, and to prevent the defendants from dissipating those assets." (Memorandum in Support of Plaintiffs' Motion for a Preliminary Injunction at 5). The standard for exercising such an equitable remedy resembles that for a preliminary injunction.
The appointment of a receiver is a matter within the sound discretion of the court, and each case must be determined upon its own conditions and circumstances, and in exercising this right the courts should ever keep in mind that a receiver is, like an injunction, an extraordinary remedy, and ought never be made except in cases of necessity, and upon a clear and satisfactory showing that the emergency exists, in order to protect the interests of the plaintiff in the property involved. The power of appointing receivers is one which the courts have said should be sparingly exercised, and with great caution and circumspection. (Emphasis added).
Rumbaugh v. Beck, 491 F. Supp. 511, 520 (E.D.Pa.), aff'd mem., 636 F.2d 1210 (3d Cir. 1980) (citing Miller v. Fisco, Inc., 376 F. Supp. 468, 470 (E.D.Pa.1974) (Emphasis original)).
No such emergency can exist in this case, for pursuant to this court's order of August 4, 1981, the remaining assets of GAL cannot be sold or otherwise used without the court's approval. The corporate assets are sufficiently protected as plaintiffs' counsel conceded at closing arguments. Plaintiffs' motion for the appointment of a trustee is denied.