Full opinion text
MEMORANDUM OPINION AND ORDER HAIGHT, District Judge: The genesis of this action is the sale and purchase of a corporation. The purchaser repents of its bargain, and seeks to undo it and recover compensatory and punitive damages. Subject matter jurisdiction in this Court is founded upon claims under the federal securities laws and the civil RICO statute, to, which state and common law claims are appended. Following extensive discovery, defendants move under Rule 56, Fed.R.Civ.P., for summary judgment dismissing the complaint. Background The action was originally assigned to District Judge Walker (as he then was). Much of the factual background appears in his two prior opinions, reported at [1988-89 Transfer Binder] Fed.Sec.L.Rep. (CCH) ¶ 94,005,1988 WL 96586 (S.D.N.Y. Aug. 25, 1988) and 728 F.Supp. 926 (S.D.N.Y.1989), familiarity with which is assumed. The litigation arises from the allegedly fraudulent sale by defendant Uniroyal, Inc. (“Uniroyal”) of its wholly-owned subsidiary Uniroyal Plastics Company, Inc. (“Plastics”) to plaintiffs Polycast Technology Corporation (“Polycast”) and Uniroyal Plastics Acquisition Corp. (“UPAC”), a company formed by Polycast to consummate the sale. I will refer to the plaintiffs collectively as “Polycast.” In substance, Polycast alleges that in valuing and pricing the shares of Plastics and in consummating the transaction, it relied on materially misleading information furnished by defendants with respect to the financial status, earnings potential, and operating condition of Plastics, and that as a result it paid a grossly excessive price for the stock. Judge Walker’s prior opinions dealt with challenges to the legal sufficiency of various pleadings. Since that time the parties have completed extensive discovery. All defendants now move for summary judgment dismissing all of plaintiffs’ claims against them. The operative pleading is plaintiffs’ fourth amended complaint (hereinafter the “Complaint”). The defendants are Uniroyal; its parent, CDU Holding, Inc.; six officers of Uniroyal and Plastics; Clayton & Dubilier, Inc., its two principals and related investment entities (the “C & S defendants”); and the trustees of the CDU Holding, Inc. Liquidating Trust. CDU Holding, Inc. owned all of Uniroyal’s common stock from September 24, 1985 to December 2, 1986. CDU Holding, Inc. Liquidating Trust is the successor in interest to Uniroyal and CDU Holding, Inc. The trustees of the CDU Holding, Inc. Liquidating Trust are the individual defendants Alan R. Elton, Martin H. Dubilier, Joseph P. Flannery, John R. Graham, and Joseph L. Rice III. At the pertinent times Flannery was chairman of the board, chief executive officer, and president of Uniroyal, as well as a stockholder. Flannery is also alleged to be a beneficiary of the Liquidating Trust. Defendant Graham was chief financial officer and a stockholder of Uniroyal, and is a beneficiary of the Liquidating Trust. Defendant Alexander R. Castaldi was vice-president, controller, and a stockholder, and a beneficiary of the Liquidating Trust. Defendant Elton was vice-president and general counsel of Uniroyal. He is named as a defendant in this action solely in his capacity as a trustee of the Liquidating Trust. Defendant Robert Alvine was group vice-president of the Engineered Products Group — Worldwide of Uniroyal, a Uniroyal stockholder, and president of Plastics until October 31, 1986. He is a beneficiary of the Liquidating Trust. Defendant Donald L. Nevins, Jr., was controller of the Engineered Products Group of Uniroyal. Defendant Alfred Weber was vice-president and the general manager of Plasties until November 1, 1986, a stockholder of Uniroyal, and is a beneficiary of a Liquidating Trust. The “C & D defendants,” as they are collectively referred to in the litigation, consist of Clayton & Dubilier, Inc., the Clayton & Dubilier Private Equity Limited Partnership, the Clayton & Dubilier Associates Limited Partnership, and the individual defendants Dubilier and Rice. The relationship of the C & D defendants to Uniroyal and Plastics came about in this fashion. Confronted with a hostile tender offer in 1985, Uniroyal executed a merger agreement later that year with CDU Acquisition, Inc. and CDU Holding, Inc. A leveraged buyout was consummated through a merger transaction. Following completion of that transaction, all of Uniroyal’s common stock was held by CDU Holding, Inc., whose shareholders included Flannery, Graham, and Weber. But the largest beneficial shareholder of CDU Holding, Inc. was the Clayton & Dubilier Private Equity Fund Limited Partnership (“C & D Private Equity”), which held 32.5% of the common stock of CDU Holding, Inc. The general partner of C & D Private Equity was Clayton & Dubilier Associates Limited Partnership (“C & D Associates”). Dubilier and Rice were the general partners of C & D Associates. At the times pertinent to this litigation, Uniroyal’s three-man executive committee consisted of Flannery, Rice and Dubilier. Defendants Flannery, Graham, Castaldi, Alvine, Clayton & Dubilier, Inc., the Clayton & Dubilier Private Equity Fund Limited Partnership, the Clayton & Associates Limited Partnership, Dubilier and Rice are alleged to have been at the pertinent times controlling persons of Uniroyal and of CDU Holding, Inc. under section 15 of the Securities Act of 1933, 15 U.S.C. § 77o and section 20 of the Securities Exchange Act of 1934, 15 U.S.C. § 78t. Polycast agreed to purchase Plastics from Uniroyal in a Stock Purchase Agreement (hereinafter “SPA”) dated as of July 23, 1986. The transaction closed on October 31, 1986. Plaintiffs now regret that purchase, regard themselves as the victims of fraud, and commenced this action which they summarize in their brief at 2: The core of this case is a fraud claim— that defendants deliberately misrepresented what [Plastics] would earn in 1986 and subsequent years and that plaintiffs relied upon those false representations in purchasing Plastics for $110 million. That core finds expression in nine claims for relief set forth in the complaint, as follows: The first claim, against all defendants, alleges violations of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Complaint, ¶¶ 34-148. The second claim, against all defendants, alleges violation of section 12(2) of the Securities Act of 1933, 15 U.S.C. § 77l(2). Complaint, ¶¶ 149-159. The third claim, against the C & D defendants, charges them as principals in violating section 12(2) of the Securities Act. Complaint, ¶¶ 160-161. The fourth claim, against all defendants, charges violations of the RICO statute, 18 U.S.C. § 1962(c). Complaint, ¶ 162-181. The fifth claim, against all defendants, alleges common law fraud. Complaint, ¶¶ 182-189. The sixth claim, against all defendants, alleges negligent misrepresentation. Complaint, ¶¶ 190-195. The seventh claim, against Uniroyal and the trustees of the Liquidating Trust, alleges breach of warranty. Complaint, ¶¶ 196-202. The eighth claim, against Uniroyal and the trustees of the Liquidating Trust, is for indemnity. Complaint, ¶¶ 203-208. The ninth claim, against Uniroyal and the trustees of the Liquidating Trust, is for reformation of the purchase agreement. Complaint, ¶¶ 209-225. In their prayers for relief, pleaded in the alternative, plaintiffs seek rescission or reformation of the contract, and compensatory and punitive damages, with compensatory damages to be trebled under RICO. The parties have engaged in extensive discovery. The deposition transcripts and documents produced are voluminous. It is difficult to imagine that trial will give rise to additional evidentiary material of any significance. All defendants now move for summary judgment. Discussion Under Fed.R.Civ.P. 56(c), the moving party is entitled to summary judgment if the papers “show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” On such a motion, “a court’s responsibility is to assess whether there are any factual issues to be tried, while resolving ambiguities and drawing reasonable inferences against the moving party.” Coach Leatherware Co., Inc. v. Ann Taylor, Inc., 933 F.2d 162, 167 (2d Cir.1991) (citing Knight v. U.S. Fire Insurance, 804 F.2d 9 (2d Cir.1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d 762 (1987)). The responding party “must set forth specific facts showing that there is a genuine issue for trial.” Fed.R.Civ.P. 56(e). “The non-movant cannot ‘escape summary judgment merely by vaguely asserting the existence of some unspecified disputed material facts,’ ... or defeat the motion through ‘mere speculation or conjecture.’ ” Western World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir.1990) (citations omitted). While the party resisting summary judgment must show a dispute of fact, it must also be a material fact in light of the substantive law. “Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). That is because “a complete failure of proof concerning an essential element of the nonmoving party’s case necessarily renders all other facts immaterial.” Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). The Fraud Claims I will first consider plaintiffs’ claims for securities fraud and common law fraud. While defendants’ brief discusses plaintiffs’ section 12(2) claims under the fraud heading, that is inappropriate given the quite different theory of liability that obtains, and I will discuss the section 12(2) claims separately. As noted, the “core” of plaintiffs’ fraud claim is that defendants deliberately misrepresented “what Plastics would earn in 1986 and subsequent years,” namely 1987-1990; and that plaintiffs relied upon those false representations in purchasing Plastics for $110 million. With respect to Plastics’ 1986 earnings, plaintiffs place particular emphasis upon an earnings forecast of $13.3 million which they allege that Castaldi and Alvine, “in the presence of ... Rice and acting on behalf of all defendants other than Elton,” communicated to Polycast’s officers at a meeting on September 5, 1986, going on to represent, among other assertions, that this $13.3 million earnings estimate “was a rock bottom number which could be taken to the bank.” Complaint at it 112. Particularly relying upon that representation, “plaintiffs decided to submit a revised bid for Plastics.” Id. at 114. The complaint’s reference to a “revised bid” requires some review of the events leading up to the purchase, which in significant measure are not disputed. Plastics was one of several wholly owned subsidiaries of Uniroyal. Uniroyal decided to sell Plastics pursuant to an auction process conducted by Drexel, Burnham, Lambert, Inc. of New York (“Drexel”). Uniroyal and Drexel produced an offering memorandum which Drexel circulated to potential purchasers, including Polycast. The offering memorandum included a projection that Plastic’s income for 1986 would be approximately $24 million. Uniroyal delivered the offering memorandum to potential purchasers in March 1986. In a meeting on May 8, 1986 at Uniroyal’s headquarters in Oxford, Connecticut, Alvine, Nevins and Weber met with representatives of Polycast and told them that Uniroyal had lowered its 1986 earnings forecast for Plastics from $24.0 million to $22.5 million. Complaint at ¶ 60. On June 12, 1986, Uniroyal informed Po-lycast that Uniroyal had again lowered its 1986 earnings forecast for Plastics, this time from $22.5 million to $20.5 million. Id. at ¶ 67. On June 24, 1986, Uniroyal informed Polycast that Uniroyal now estimated 1986 earnings for Plastics to be $17.6 million. Id. at 1169. On or about July 23, 1986 Polycast submitted to Uniroyal the winning bid of $134 million to purchase Plastics. The SPA was executed that date. It was accompanied by a disclosure letter in which Uniroyal reiterated a 1986 earnings forecast for Plastics of $17.5 million. Id. at ¶¶ 79-81. On August 27, 1986, Castaldi, Alvine and Weber informed Polycast that Uniroyal had again lowered its forecast of Plastics’ 1986 earnings to approximately $15.5 million. Polycast, in accordance with its rights under the SPA, withdrew its offer to purchase Plastics and terminated the SPA. This set the stage for the September 5, 1986 meeting, at which the representatives for Uniroyal and Plastics told Poly cast of the $13.3 million “rock bottom” 1986 earnings forecast for Plastics. Further negotiations between the parties ensued. Eventually, on September 23, 1986, Polycast agreed to purchase Plastics for $111.6 million. The SPA was amended on that date to reflect the new purchase price and a new closing date. Id. at 122. The purchase price was reduced one more time following a telephone conversation on October 27, 1986, between Weber and Richard Schneider, Polycast’s president. In that conversation Weber acknowledged that Plastics would not achieve its sales, forecast for the month of October 1986. Polycast then negotiated a reduction in the purchase price from $111.6 to $110 million. The parties executed a further amendment to the SPA reflecting that reduction. Unlike the prior amendment reducing the purchase price to $111.6 million, the amendment did not refer to or change Uniroyal’s previous 1986 earnings forecast for Plastics. The transaction closed on October 31, 1986, at the $110 million purchase price. Id. at ¶ 123. As for the projections of Plastics’ earnings for 1987 through 1990, the complaint alleges at ¶ 72 that on or about July 2, 1986, Donald A. Ware, the assistant corporate controller of Uniroyal, sent to Drexel documents forecasting Plastics’ earnings before interest and taxes of $17.6 million during 1986, and forecasts of $20.7 million, $22.7 million, $24.9 million, and $27.0 million for 1987, 1988, 1989, and 1990 respectively. Plaintiffs allege that these forecasts for the later years were based in part on the then-existing $17.6 million forecast for 1986, which defendants knew to be false. Complaint at ¶ 74. The third specific area of fraud plaintiffs allege concerns a contract Plastics had to supply the Northrop Corporation with fuel cells for the F/A-18 military fighter plane. The presentations made by Uniroyal and Plastics representatives to Polycast projected sales by Plastics to Northrop of these fuel cells. In mid-September 1986, Northrop cancelled its contract with Plastics. Uniroyal and Plastics did not advise Poly-cast of that cancellation and Polycast did not learn of it until after the closing. Poly-east alleges that defendants engaged in the fraudulent non-disclosure of a material fact. Complaint at ¶¶ 106-111. Plaintiffs place primary emphasis upon the $13.3 million estimate of Plastics’ 1986 earnings articulated at the September 5, 1986 meeting. All defendants argue that as a matter of law Polycast cannot establish reliance, cognizable damages or loss causation with respect to that earnings estimate. The C & D defendants also argue that they are entitled to summary judgment on the element of scienter. The appropriateness of summary judgment depends in part upon the “governing law,” Anderson at 250, 106 S.Ct. at 2511. The trial judge must “view the evidence through the prism of the substantive evidentiary burden.” Id. at 254, 106 S.Ct. at 2513. In order to establish a claim for securities fraud under section 10(b) of the 1934 Act, a plaintiff must allege and prove “that, in connection with the purchase or sale of securities, the defendant, acting with scienter, made a false material representation or omitted to disclose material information and that plaintiff’s reliance on defendant’s actions caused him injury.” Bloor v. Carro, Spanbock, Londin, Rodman & Foss, 754 F.2d 57, 61 (2d Cir.1985). In federal securities cases the plaintiff’s burden of proof is the “preponderance-of-the-evidence standard generally applicable in civil actions.” Herman and MacLean v. Huddelston, 459 U.S. 375, 390, 103 S.Ct. 683, 691, 74 L.Ed.2d 548 (1983). As the Second Circuit observed in Weinberger v. Kendrick, 698 F.2d 61, 78 (2d Cir.1982), cert. denied, 464 U.S. 818, 104 S.Ct. 77, 78 L.Ed.2d 89 (1983), “the plaintiff’s burden of proof in a common law fraud case — clear and convincing evidence — is more demanding than in a Rule 10b-5 case.” (construing New York law). Defendants at bar acknowledge that the forecasts of Plastics’ 1986 earnings were given “in connection with the purchase or sale of securities,” namely, the Plastics stock which Polycast bought. Defendants argue, however, that the September 5, 1986 forecast of $13.3 million in 1986 earnings was a forecast, and not a guarantee. Defendants cite Second Circuit authority for the propositions that “[ejconomic prognostication, though faulty, does not, without more, amount to fraud,” Decker v. Massey-Ferguson, Ltd., 681 F.2d 111, 117 (2d Cir.1982) (quoting Polin v. Conductron Corp., 552 F.2d 797, 805 (8th Cir.), cert. denied, 434 U.S. 857, 98 S.Ct. 178, 54 L.Ed.2d 129 (1977)); and “[t]he sole factual elements of a projection should be that it represents management’s view, that it was reached in a rational fashion and that it is a sincere view.” Marx v. Computer Sciences Corp., 507 F.2d 485, 490 n. 7 (9th Cir.1974). However, as the cases, cited by defendants themselves suggest, economic estimates, forecasts or projections are not insulated from claims for fraud if they were put forward in bad faith, with awareness of their inaccuracy, and an intent to deceive. “Liability may follow where management intentionally fosters a mistaken belief concerning a material fact, such as its evaluation of the company’s progress and earnings prospects in the current year.” Elkind v. Liggett & Myers, Inc., 635 F.2d 156, 164 (2d Cir.1980). Defendants do not suggest that the $13.3 million earnings forecast was not a material fact in the context of the proposed purchase. There is sufficient evidence to permit a jury to find that a number of Uniroyal and Plastics officers deliberately concocted false earnings forecasts, including the $13.3 million estimate, in order to induce Polycast to purchase Plastics. Defendants argue in their briefs that these charges of falsity and scienter depend solely on the testimony of T. Oliver Kirrane, a former Plastics officer. In point of fact, there is more evidence in plaintiffs’ favor on the issues than that; but even if plaintiffs’ case depended entirely upon the testimony of Kirrane, who the jury could find refused to go along with the fraud, his credibility would be for the jury to evaluate. Sensibly enough, defendants do not press these points. Rather, they focus upon reliance and causation. Defendants argue that Polycast did not rely on the $13.3 million estimate. They find support for that proposition in disclaimers Polycast included in a private placement memorandum it prepared in October 1986 with a view towards financing its purchase of Plastics. Polycast included in that memorandum the earnings projections provided by Plastics and Uniroyal, and said of them: The projections are based upon estimates and assumptions about circumstances and events that have not yet taken place, are subject to customary uncertainties inherent in making projections and may be materially affected by changes in circumstances and numerous other variables, many of which are difficult to predict and beyond the control of Polycast and Uniroyal Plastics. Therefore, the actual results achieved will vary from the projections, these variation may be material and there can be no assurance that the projected results will be attained. Secondly, defendants rely upon communications between Uniroyal and Plastics on the one hand and Polycast on the other between September 5, 1986 and the October 31, 1986 closing. Fulfillment of the $13.3 million estimated earnings during 1986 depended in part upon Plastics’ earnings during September and October 1986. Defendants point to the allegation in If 123 of the complaint that “[i]n response to repeated inquiries from plaintiffs, during October 1986 Uniroyal disclosed to plaintiffs certain preliminary financial information purporting to record business activity at Plastics during September 1986”, which “suggested that Plastics had not met certain financial targets for September.” Defendants in their main brief at 33 omit the next sentence from H 123 of the complaint, which reads: “However, defendants did not withdraw Uniroyal’s 1986 earnings forecast for Plastics of $13.3 million and failed to disclose that Plastics’ earnings would be materially lower than $13.3 million.” That omitted language undermines the effectiveness of any admission that might otherwise be derived from the pleading. On the reliance issue, defendants stress particularly the telephone conversation on October 27, 1986, between Weber and Schneider. In the October 27, 1986 telephone conversation between Schneider and Weber, Weber told Schneider that Plastics anticipated a shortfall of approximately $2 million in projected sales for October, with a corresponding decline of approximately $760,000 in earnings that month. Weber and Schneider did not discuss the $13.3 million estimate in their October 27 conversation. Schneider became angry. He told Weber that Polycast was paying too much for Plastics and would “take the price down.” Weber Dep. at 1782. On October 29, 1986 Polycast demanded and ultimately received a $1.6 million reduction on the purchase price for Plastics: from $111.6 million to $110 million, the figure at which the deal closed on October 31. Polycast advised its potential investors that the reduction in the purchase price resulted from reductions in Plastics’ projected earnings. These facts are for the most part undisputed. The question is whether, as defendants contend, they establish that Polycast did not rely on the $13.3 estimate conveyed on September 5, 1986 in deciding to purchase Plastics at the reduced price of $110 million on October 31. Defendants say that “as a result of information provided by Uniroyal for days before the closing, Polycast did not in fact reply upon the $13.3 million projection.” Reply Brief at 5. The jury could find that Uniroyal and Plastics officers fraudulently concocted the $13.3 million forecast, which bore no resemblance to economic reality, for the express purpose of luring Polycast into going through with the deal. The jury could find this to be a modus operandi, infecting and tainting the prior earning estimates. For example, there is evidence from which the jury could find that in August 1986 Flan-nery threatened to fire Weber after Weber told Polycast at a meeting that Plastics would earn less than the then existing estimate, and that Flannery explicitly rejected the advice of house counsel, including Elton, that all business data be disclosed to 'Polycast. The jury could further find, as plaintiffs argue in their briefs, that Plastics earned only $5.2 million in 1986, and that had plaintiffs known of the depth of the deception practiced upon them, they would not have closed the deal. I do not say that the jury will make these findings. However, viewing the evidence in the light most favorable ito the non-moving party, as required by thé cases, the jury could do so. What does “reliance” mean in this context? No rational jury could find that at the time of closing plaintiffs relied on the $13.3 million projection as “bankable”, in the sense represented during the September 5 meeting: “not subject to reduction.” That perception could not, and did not, survive Schneider’s October 27 conversation with Weber. Schneider, content to pay $111.6 million for Plastics on the basis of the September 5 $13.3 million projection, was content no longer. Concern for the earnings projection fueled that discontent, and led to a reduced purchase price. But the jury could find that at the time of closing Polycast believed that the $13.3 million projection, while no longer “bankable” in that precise amount, had nonetheless been calculated and communicated in good faith by Uniroyal and Plastics. The jury could find, in other words, that Polycast continued to rely on the integrity of the process, although it no longer relied on the particular end figure. The distinction is pragmatic and accords with common sense. Plaintiffs’ fraud claim is not so much that the particular $13.3 million was inaccurate, but that the process producing the projection was corrupt: a conclusion the jury could easily reach if it accepts the testimony of Kirrane, arguably corroborated by other evidence. Polycast was entitled to rely on the defendants’ good faith in projecting Plastics’ earnings. It was entitled to rely on the integrity of the $13.3 million projection, even if probable cause had arisen to doubt its accuracy. If Polycast had known then what discovery has arguably revealed about the corruption of the process, it is not fanciful to suggest that plaintiffs would have cancelled the deal. At least the jury could draw that inference. Therefore, in a real sense, Polycast continued to rely on the $13.3 million estimate; or so a jury could find. Was that continued reliance reasonable? “Whether or not reliance was justifiable is ordinarily a question of fact to be determined by the trier of fact on all of the facts and circumstances proven at trial.” Stratford Group Ltd. v. Interstate Bakeries, 590 F.Supp. 859, 865 (S.D.N.Y.1984) (construing New York law). The contentions of the parties with respect to reliance raise issues of fact for trial. As for cancellation of the Northrop contract, Uniroyal and Plastics chose not to disclose the cancellation to Polycast before the closing. Accordingly “positive proof of reliance is not a prerequisite for recovery. All that is necessary is that the facts withheld be material in the sense that a reasonable investor might have considered them important in the making of [the] decision.” Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 153-54, 92 S.Ct. 1456, 1472, 31 L.Ed.2d 741 (1972). The jury could find that cancellation of the Northrop contract was material. The jurors could consider the doomsday expressions of alarm voiced by Plastics and Uniroyal officers when contemplating the possibility of a cancellation. To be sure, defendants now contend that the Northrop cancellation was a blessing in disguise because the contract was losing Plastics money. Plaintiffs dispute that proposition. The question is one of considerable cost accounting and economic complexity. It poses a triable issue of fact. As for the estimates of Plastics’ 1987-1990 earnings, Judge Walker recognized in one of his prior opinions that plaintiffs allege these later forecasts were “ ‘based in part’ on the allegedly false 1986 forecasts.” 728 F.Supp. at 942-43. Plaintiffs’ fraud claim arising out of these later estimates poses triable issues of fact. Defendants argue that since plaintiffs’ investment bankers at the Boston office of Drexel Burnham Lambert formulated their own reduced projection for 1987 through 1990 earnings, Polycast cannot be said in law to have relied upon the higher estimates furnished by defendants on July 2, 1986. It is true that Drexel Boston performed such calculations in connection with the private placement memorandum issued by plaintiffs in October 1986. But the jury could find that all plaintiffs and their advisers did was to reduce the 1987-1990 forecasts proportionately to Uniroyal’s reduction of Plastics’ 1986 earnings to $13.3 million, so that in practical effect defendants were also responsible for these later projections by the other side. Next the defendants argue that plaintiffs cannot prove causation. With respect to the $13.3 million 1986 estimate, they argue, first, that the estimate did not cause Polycast any “cognizable damages”; and second, that even if damages occurred, plaintiffs cannot prove loss causation. On the first of these contentions, defendants rely upon particular declarations made by or on behalf of plaintiffs which they regard as admissions against interest. In February 1987 Schneider met with officers of the Continental Illinois Bank and Trust Company of Chicago, a potential lender, and said according to contemporaneous documentary evidence that the $110 million purchase price paid “is fair from an historical earnings viewpoint but can be considered a bargain price if the future potential of the company is considered.” Secondly, defendants point to consolidated financial statements in UPAC’s Form 10K for the year ended September 1987. Those financials included an entry for $75 million of goodwill arising from the acquisition of Plastics, which defendants say “reflects the difference between the $110 million purchase price, plus contingent liabilities recorded, less the value of Plastics’ assets.” Main brief at 38. The SEC staff, responding to that Form 10K, noted that while UP AC recognized and recorded on its balance sheet in September 27, 1987 $75 million in goodwill resulting from the acquisition of Plastics, it had also disclosed that Polycast had commenced suit against Uniroyal for not less than $75 million in damages caused by misrepresentations concerning Plastics’ financial state, earnings potential and operating conditions. The SEC staff regarded these statements as inconsistent and asked for an explanation. Defendants contend that the reference to goodwill demonstrates as a matter of law that the purchase of Plastics caused plaintiffs no cognizable damage, as that concept is defined in section 10(b) actions by Randall v. Loftsgaardan, 478 U.S. 647, 661-662, 106 S.Ct. 3143, 3152, 92 L.Ed.2d 525 (1986) (out-of-pocket measure of damages consists of the difference between the fair value of all that the purchaser received and the fair value of what he would have received had there been no fraudulent conduct). Plaintiffs respond that Schneider’s statements to the Continental Illinois Bank as reflected in the pertinent exhibit could not have been made later than February 1987, when Schneider made his presentation to that potential investor. Schneider told the bank that, based upon his then existing impressions, Plastics would earn $10 million in 1986 and $17 million in 1987. These amounts were less than defendants had represented. More significant to the present question, plaintiffs say without contradiction that the field work on the audit of Plastics’ financial statements for the ten months ended October 31, 1986 was not completed until May 1987; and it was not until then that Polycast learned that Polycast that Plastics only earned $3,709 million for those 10 months. Plaintiffs say that Schneider’s statements to the bank in February 1987 prove nothing more than the depth of defendants’ deception. As for UP AC’s correspondence with the SEC staff, plaintiffs point out that eventually the SEC concluded there was no inconsistency between the lawsuit’s claims against Uniroyal and the goodwill entry in the Form 10K. That was because UPAC had allocated the goodwill to Plastics’ profitable businesses, which were expected to generate sufficient pre-tax income to allow amortization of the allocated goodwill over 14 years. At the conclusion of the correspondence, the SEC was content to require UPAC and Polycast to agree that they would credit any recovery from the litigation to goodwill. These declarations are admissible against plaintiffs under Rule 801(d)(2), F.R.Evid. However, they fall well short of establishing as a matter of law that plaintiffs suffered no cognizable economic loss, - particularly since economic loss in section 10(b) cases may in certain circumstances be measured by “out-of-pocket loss, the benefit of the bargain, or some other appropriate standard.” Osofsky v. Zipf 645 F.2d 107, 111 (2d Cir.1981). Conceptually at least, a party’s admissions may demonstrate beyond cavil that it has suffered no economic loss; but plaintiffs’ explanations for and interpretations of the declarations upon which defendants rely pose triable issues. Defendants also note that Polycast sold three of Plastics’ businesses for amounts totalling $91 million, and indicated to the SEC that it had received offers for others. Defendants say that accordingly the total proceeds of the divestiture of Plastics’ businesses “would far exceed the price Poly-cast paid for Plasties,” main brief at 40, so that Polycast suffered no loss. Plaintiffs respond that these gross sales prices were acquired at the cost of plaintiffs assuming “immense liabilities” under the SPA, such as unfunded pension liabilities (estimated at approximately $75 million before tax or $54 million net of tax) and environmental liabilities (estimated at $13 million). Defendants reply that nonetheless, Polycast has realized a net gain (that is, the price exceeded the cash cost and the liabilities assumed) on the businesses it has sold. Reply brief at 21 n. 13. I decline to hold this record or in response to these arguments that plaintiffs cannot establish a cognizable economic loss as a matter of law. Defendants confine their analysis to out-of-pocket loss, but this is not an exclusive measure of compensatory damages, as the Second Circuit held in Osofsky. Benefit-of-the-bargain is a possible alternative measure of compensatory damages. In Levine v. Seilon, Inc., 439 F.2d 328, 334 (2d Cir.1971), Judge Friendly said in dictum that in section 10(b) cases a defrauded buyer of securities “is entitled to recover only the excess of what he paid over the value of what he got, not, as some other courts had held, the difference between the value of what' he got and what it was represented he would be getting.” More recently the Second Circuit has extended the benefit-of-the-bargain measure of damages under the 1934 Act .to the “limited situation” where “misrepresentation is made in the tender offer and proxy solicitation materials as to the consideration to be forthcoming upon an intended merger.” Osofsky at 114. But see Freschi v. Grand Coal Venture, 588 F.Supp. 1257, 1259 (S.D.N.Y.1984) (limiting Osofsky to its facts and applying out-of-pocket measure of loss to section 10(b) claim). On this motion for summary judgment, I need not further consider the present state of appellate authority on the measures of compensatory damages available to buyers under the 1934 Act because'plaintiffs at bar also assert claims for common law fraud. In Osofsky the Second Circuit said that “the benefit-of-the-bargain measure of compensatory damages is recognized as the preferable measure in common law fraud actions.” Citing Prosser’s text and the Restatement (Second) of Torts (1977) for that proposition, Judge Oakes went on to say at 114: Thus, the Restatement (Second) of Torts § 549(2) (1977) provides, in the case of. a fraudulent misrepresentation in a business transaction, for the recovery of “damages sufficient to give [the recipient] the benefit of his contract with the maker, if these damages are proved with reasonable certainty.” Though out-of-pocket loss may be the usual and logical form of compensatory relief in tort actions, Comment g on section 549(2) explains that this measure of damages does not always afford “just and satisfactory” compensation when the plaintiff has' made a bargain based on fraudulent representations by the defendant. Therefore “the great majority of the American courts [have adopted] a broad general rule giving the plaintiff, in an action of deceit, the benefit of his bargain with the defendant in all cases, and making that the normal measure of recovery in actions of deceit.” Id. Otherwise, in situations such as that involved in the instant case, “the defendant [would be] enabled to speculate on his fraud and still be assured that he [could] suffer no pecuniary loss,” id. at Comment i. That analysis applies squarely to the present plaintiffs’ common law fraud claim, which a jury could conclude had been shown by clear and convincing evidence. Even if the analysis be confined to out-of-pocket compensatory damages, plaintiffs’ expert witness is prepared to testify that “Plastics was worth approximately $60 million on October 31, 1986.” Plaintiff’s brief at 67. If the jury accepts that figure, the $110 million purchase price establishes an out-of-pocket losses. To be sure, expert evaluations are subject to cross-examination and challenge; but that is the function of plenary trials, not summary dispositions. Defendants are not entitled to summary judgment on the basis that plaintiffs suffered no cognizable damage as a matter of law. In reaching that conclusion, I have considered all of the evidence culled by the defendants from the extensive discovery record in support of their contentions, whether or not specifically addressed supra. The C & D defendants require separate consideration. They contend that even if “there is sufficient evidence as to misrepresentation and loss causation to go to the jury,” defendants’ brief at 88 (and there is), nonetheless the fraud claims must be dismissed as to the C & D defendants because there is no evidence suggesting they were involved in the formulation of Plastics’ earning projections, including the $13.3 million projection upon which plaintiffs’ fraud claims are primarily based, or that the C & D defendants had the intent to deceive plaintiffs. In his opinion reported at 728 F.Supp. 926, Judge Walker held that Polycast’s third amended complaint (identical to the present pleading in this respect) sufficiently alleged scienter on the part of the C & D defendants. Judge Walker focused upon the alleged participation of Rice and Dubilier in the events surrounding the offering of Plastics for sale and the ultimate consummation of the sale to Polycast. Judge Walker concluded his discussion on the point by saying: “Polycast’s allegations of Rice and Dubilier’s beneficial interest in Uniroyal’s assets implicitly established a motive for committing fraud. The allegations of their involvement in the preparation of the offering memorandum demonstrate an opportunity for doing so and support the inference of knowledge on their part.” Id. at 936. The C & D defendants now argue that the allegations sufficient to support an inference of scienter have been proven hollow by the evidence, or lack of evidence, adduced during discovery. They pray for summary judgment dismissing the fraud claims against them for that reason. Consistent with the authorities cited supra, my proper function is to assess whether the C & D defendants’ scienter (obviously a material fact under the governing law) presents a genuine issue requiring trial. In answering that question, I resolve all ambiguities in the evidence and draw all reasonable inferences in favor of plaintiffs and against the C & D defendants. The motive of Rice and Dubilier to commit fraud upon a purchaser of a Uniroyal asset such as Plastics is manifest. Rice and Dubilier managed all the C & D Entities. Those entities held a 32.5% equity interest in Uniroyal. The leveraged buyout had saddled Uniroyal with $900 million in debt. To maximize a return to the C & D entities, it was necessary to maximize the sale price of a Uniroyal asset like Plastics. These economic truths are illustrated by a post-closing cash distribution which occurred in December 1986.. At that time C & D Private Equity received 32.5% of the cash distribution, or $60,206,250; C & D Associates received $6 or $7 million; and Rice and Dubilier each received approximately 45% of that amount. A section 10(b) plaintiff must prove its case by a preponderance of the evidence only, and not by clear and convincing evidence. See Herman & MacLean v. Huddleston, 459 U.S. 375, 390-91, 103 S.Ct. 683, 692, 74 L.Ed.2d 548 (1983). As for scienter the Court said at 390 n. 30, 103 S.Ct. at 692 n. 30: The Court of Appeals also noted that the proof of scienter required in fraud cases is often a matter of inference from circumstantial evidence. If anything, the difficulty of proving the defendant’s state of mind supports a lower standard of proof. In any event, we have noted elsewhere that circumstantial evidence can be more than sufficient, (citing cases). Motive based upon personal gain is a recognized circumstance from which intent to commit fraud may be inferred. Rice arid Dubilier had that motive to commit fraud upon a purchaser of Plastics. Another circumstance is whether Rice and Dubilier should be regarded as “insiders” or “outsiders” in the conduct of Uniroyal’s affairs. At the pertinent times Rice and Dubilier, together with Flannery, Uniroyal’s chairman, chief executive officer and president, comprised the company’s three-man executive committee. Nonetheless, Rice and Dubilier say they should not be considered Uniroyal insiders. They cite Lanza v. Drexel & Co., 479 F.2d 1277, 1306 (2d Cir.1973) for that proposition. In Lanza the Second Circuit adopted an academic definition of “outside directors — i.e., directors who are not full-time employees of the corporation.” Id. at 1306 (quoting Bishop, Sitting Ducks and Decoy Ducks: New Trends in the Indemnification Of Corporate Directors and Officers, 77 Yale L.J. 1078, 1092 (1968)). More recently, the Second Circuit has said in evaluating a pleading of fraud under Rule 9(b), Fed.R.Civ.P. that no specific connections between fraudulent representations and particulár defendants are necessary where “defendants are insiders or affiliates participating in the offer of the securities in question.” Luce v. Edelstein, 802 F.2d 49, 55 (2d Cir.1986). See also Di Vittorio v. Equidyne Extractive Industries, Inc., 822 F.2d 1242, 1247 (2d Cir.1987) (citing and applying Luce). Applying that somewhat expanded definition of “insider” to the proof developed through discovery, I conclude that a jury could rationally regard Rice and Dubilier as Uniroyal “insiders or affiliates participating in the offer” of Plastics for sale. Accordingly the status of Rice and Dubilier is also a circumstance which the jury may consider on the issue of scienter. The membership of Rice and Dubilier on the three-man Uniroyal Executive Committee is not- determinative of the issue, although certainly it is probative. As defendants observe, between meetings of the full board of directors its powers were delegated to the executive committee; “Rice and Dubilier were never officers of Uniroyal or Plastics, and they played no role in the dáy-to-day management of either company.” Reply Brief at 33-34. True enough, if by “day-to-day management” we mean the shipping of orders, collection of bills, and controlling inventory. But the issue is whether Rice and Dubilier were “insiders or affiliates participating in the offer” of Plastics for sale and the consummation of that sale to Polycast. There is sufficient evidence to allow that characterization. On some occasions Dubilier, on other occasions Rice attended meetings or engaged in conversations with officers of Uniroyal concerning forecasts to be included in the offering memorandum, as well as subsequent reductions in the 1986 Plastics earnings estimate, and what should be done about those reductions in the context of the ongoing negotiations with Polycast. These and other meetings and conversations gave rise to contemporaneous notes or testimonial recollections the import of which the parties dispute, but to the extent they militate in favor of plaintiffs must on this motion be construed in their favor. For example, it is common ground that on February 26, 1986 Dubilier had a conversation with Graham about the offering memorandum’s references to Uniroyal’s projected financials. Graham made a contemporaneous note of that conversation which reads: “M. Dubilier. Tone down the language or increase the forecast.” Graham, also a defendant in the case, testified that Dubilier said that the language in the offering memorandum was “too optimistic” because “it doesn’t correspond with the numbers. So if the numbers are what they are, you better tone the language down because it’s too positive.” Graham Dep. at 258. Defendants say in their brief at 95 that “the only reasonable inference” to be drawn from Graham’s testimony “is that Dubilier wanted the offering memorandum to be as accurate as possible, and took what steps were necessary to insure that it was.” The trouble is that Graham’s testimony dealt with only part of what his note records Dubilier as having said, namely, “tone down the language or increase the forecast.” A jury could rationally regard the alternative suggested solution, namely increasing the forecast to square with the “positive” language, as a badge of fraud. The jury could also accept the testimony of Jonathan Furer, a Polycast officer, that at the crucial September 5, 1986 meeting where the $13.3 million projected 1986 earnings for Plastics was put forward as a rock bottom figure, Rice uttered reassurances purported by based upon his own prior experience in similar situations. To be sure, there is no evidence in the record directly establishing that either Rice or Dubilier knew that the $13.3 million projection was false, or that they had expressed the specific intent to defraud Poly-cast. But there need not be, given the holding in Herman & Maclean v. Huddelston, supra, that scienter may be and often is proved by inferences from circumstantial evidence. Viewing the evidence in the light most favorable to plaintiffs, as I am required to do, I conclude that the scienter of the C & D defendants is for the jury. Plaintiffs are also entitled to have the jury consider their alternative theory of section 10(b) liability, that Rice and Dubilier acted with reckless disregard of the fraud of others. Even outside directors may be liable if they “failed or refused, after being put on notice of a possible material failure of disclosure, to apprise themselves of the facts where they could have done so without any extraordinary effort.” Lanza v. Drexel & Co., supra, at 479 F.2d 1306 n. 98. Rice and Dubilier acknowledged that they knew of Uniroyal’s several reductions in the Plastics earnings forecasts during 1986. Rice said he made no effort to find out only the forecasts were reduced, but conceded that “I could pick up the telephone any time I wanted to and call [Flannery] and say, what did the earnings do.” Rice Dep. at 329-30. The ability of Rice and Dubilier to get to the bottom of the forecast reductions is inherent in their positions as members of Uniroyal’s executive committee. Accepting for the sake of this analysis that Rice & Dubilier knew nothing about the reasons for the reductions in forecasts, there is evidence from which the jury could find that without “extraordinary effort” they could have discovered that Uniroyal officers were engaging in fraud. Lastly the liability of the C & D defendants, or at least of Rice and Dubilier as controlling persons of Uniroyal, presents a triable issue. As Judge Walker has held in the case at bar, controlling person liability under § 20(a) does not require proof of scienter. Liability attaches if there was a primary violation, control of the primary violator by the defendant and the defendant’s culpable participation in the actions forming the predicate for the securities law violation. [1988-89 Transfer Binder] Fed. Sec.L.Rep. (CCH) 1194,005 at 90,695-96, 1988 WL 96586. Whether or not in the particular circumstances of this case it is the C & D defendants’ burden to prove good faith, cf. Marbury Management, Inc. v. Kohn, 629 F.2d 705, 716 (2d Cir.), cert. denied sub nom Wood Walker & Co. v. Marbury Management, Inc., 449 U.S. 1011, 101 S.Ct. 566, 66 L.Ed.2d 469 (1980), the issues of the control Rice and Dubilier exercised over Uniroyal in the conduct of the sales negotiations, and the propriety of that conduct, give rise to triable issues. I deny the motions of all defendants for summary judgment dismissing the section 10(b) and common law fraud claims. The Section 12(2) Claim Plaintiffs’ second and third claims allege violation of section 12(2) of the Securities Act of 1933, 15 U.S.C. § 77Z(2). The second claim charges all defendants with violating that section. Some are charged as principals, others as aiders and abettors or controlling persons. The third claim charges the C & D defendants as principals. All defendants contend that section 12(2) is inapplicable to the transaction alleged in the complaint. Section 12(2) of the 1933 Act provides in pertinent part: Any person who ... offers or sells a security ... by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission, shall be liable to the person purchasing such security ‘ from him ... (emphasis added). Section 12 deals with the liability of “statutory sellers” of securities. See Pinter v. Dahl, 486 U.S. 622, 108 S.Ct. 2063, 100 L.Ed.2d 658 (1988) (construing section 12(1)). Section 12 liability is broader than liability for fraud. Statutory sellers “may now be liable under section 12 whether or not scienter or loss causation is shown.” Wilson v. Saintine Exploration and Drilling Corp., 872 E.2d 1124, 1126 (2d Cir.1989) (applying Pinter rationale to a section 12(2) claim). See also Capri v. Murphy, 856 F.2d 473, 478 (2d Cir.1988) (under section 12(2), sellers’ “material misrepresentations and omissions render them strictly liable to plaintiffs”); Ballay v. Legg Mason Wood Walker, Inc., 925 F.2d 682, 689 (3rd Cir.1991) (in contrast to section 10(b), section 12(2) “makes actionable negligent misrepresentation absent proof of scienter or fraud”). Notwithstanding these less demanding standards for liability, a section 12(2) plaintiff must still prove that the defendants sold the security “by means of a prospectus or oral communication.” “Prospectus” has a recognized meaning. Congress did not define the words “oral communication” in the 1933 Act. In Ballay the Third Circuit applied to the phrase “prospectus or oral communication” the maxim, noscitur a sociis, that a word is known by the company it keeps, and construed the phrase to mean “that buyers may recover for material misrepresentations made in a prospectus or in an oral communication related to a prospectus or initial offering.” 925 F.2d at 688. Ballay went on to hold that section 12(2) did not apply to a broker-seller of securities in the secondary market. While defendants at bar rely on Ballay, plaintiffs correctly observe that the transaction in suit does not involve the secondary market, but rather the direct sale of securities (the outstanding shares of Plastics) as part of the sale of that company to Polycast. Nonetheless, Ballay is instructive in its implicit requirement that the prospectus or oral communication have something to do with the challenged sale. The Second Circuit had previously made that requirement explicit in Jackson v. Oppenheim, 533 F.2d 826 (2d Cir.1976). The Second Circuit held that while a section 12(2) plaintiff need not prove the particular kinds of causation required in fraud claims, nevertheless “he must still prove that the challenged sale was effected ‘by means of’ the communication viewed .as a whole. That is to say, the communication as a whole must have been instrumental, in the sale” of the securities. Id. at 829-30. Expanding on that concept, the court of appeals said that where the defendant’s liability is based on a sale of securities Section 12(2) requires there to be some causal relationship between the challenged communication and the sale, even if not “decisive.” In short, the communication must have been intended or perceived as instrumental in effecting the sale. Id. at 830 n. 8. The inquiry is fact-specific, as illustrated by Judge Tenney’s opinion in Eriksson v. Galvin, 484 F.Supp. 1108-1125 (S.D.N.Y.1980): The Court concludes, as in Jackson, that neither the challenged communications nor the so-called omissions were responsible for the plaintiff’s conduct. “[TJhere was an abundance of evidence of the matters the plaintiff really considered important in entering this face to face transaction,” Titan Group, Inc. v. Faggen, 513 F.2d 234, 239 (2d Cir.), cert. denied, 423 U.S. 840, 96 S.Ct. 70, 46 L.Ed.2d 59 (1975), and Eriksson was well aware of the opportunities and risks inherent in his agreement with the defendants. See Seibert v. Sperry Rand Corp., 586 F.2d 949, 952 (2d Cir.1978); Spielman v. General Host Corp., 538 F.2d 39, 41 (2d Cir.1976). Accordingly, a section 12(2) claim has not been established because the alleged misrepresentations and omissions were not “instrumental in effecting the sale.” Jackson v. Oppenheim, supra, 533 F.2d at 830 n. 8. In the case at bar, plaintiffs allege that the false or misleading statements of material facts giving rise to section 12(2) liability appear in the earnings projections for Plastics described in the complaint at ¶ 54-55, 60-61, 67-68, 70-71, 72-74, 80-82, 87, 104-105, 112-113 and 122. See Complaint at ¶ 150. These specified allegations trace the reductions in earning projections from the offering memorandum (¶¶ 54-55) through the May 8, 1986 lowering of the 1986 earnings forecast from $24.0 million to $22.5 million (11¶ 60-61), to the June 12, 1986 lowering from $22.5 to $20.5 million (HU 67-68), to the June 24, 1986 lowering to $17.6 million (¶¶ 70-71), together with the forecasted earnings for 1987, 1988, 1989, and 1990 (¶¶ 72-74), to the September 5, 1986 lowering of the 1986 forecast to $13.3 million. From these allegations plaintiffs argue in their brief at 84 that section 12(2) is implicated because the sale of the Plastics shares “was accomplished by means of a prospectus, the offering memorandum, and numerous oral communications.” Only the statements made on September 5, 1986 with respect to the 1986 $13.3 million earnings projection can arguably sustain a section 12(2) claim. Plaintiffs cannot be heard to say that the offering memorandum delivered in March 1986 was “intended or perceived” by plaintiffs “as instrumental in effecting the sale” because the SPA executed on July 23, 1986 specifically provided that it superseded “all other prior ... communications of the parties, oral or written, respecting such subject matter.” By the same token, the preSeptember 5, 1986 earnings projections cannot be regarded as instrumental in effecting the sale. On the contrary, those repeatedly lowered forecasts caused plaintiffs to reject the sale by terminating the SPA. The $13.3 million 1986 earnings projection Uniroyal presented to Polycast at the September 5, 1986 meeting stands on a different footing. The jury could find that Polycast terminated the SPA in late August 1986, returned to the bargaining table in early September, received Uniroyal’s assurances that, unlike the earlier forecasts, the $13.3 million 1986 earnings estimate were really and truly reliable, and agreed to purchase Plastics for $111.6 million on September 23. Notwithstanding the further purchase price reduction to $110 million, a jury could find that the September 5 earnings estimate was “related to a prospectus or initial offering,” Bal-lay, and was “intended [by Uniroyal] or perceived [by Polycast] as instrumental in effecting the sale,” Jackson. Accordingly the September 5, 1986 earnings estimate gives rise to a triable issue of section 12(2) liability unless, as defendants argue in their main brief at 52, the general merger clause in the SPA bars the claim. Article 10, Section 10.12 of the SPA provides: Entire Agreement. This Agreement, including the Letter, the Schedules hereto and the other documents delivered pursuant to this Agreement, and the confidentiality Agreement, contain all of the terms, conditions and representations and warranties agreed upon by the parties relating to the subject matter of this Agreement and supersede all other prior agreements, negotiations, correspondence, undertakings and communications of the parties, oral or written, respecting such subject matter. Defendants argue that by this language, Polycast agreed “that any prospectus (like the Offering Memorandum) and oral communications were not-part of its bargain with Uniroyal.” In one of his prior decisions. Judge Walker considered Section 10.12 within the somewhat analogous context of plaintiffs’ common law claim for negligent misrepresentation. Judge Walker said that Section 10.12 is a “general merger clause ... which bars extra-contractual commitments of any kind.” [1988-1989 Transfer Binder] Fed.Sec.L.Rep. (CCH) 1194,005 (S.D.N.Y. Aug. 25, 1988) at 90,699. After reviewing the SPA and its accompanying documents, Judge Walker concluded that the alleged misrepresentations concerning Plasties’ earnings projections (including the September 5, 1986 $13.3 million estimate) “were not extracontractual and hence are properly the subject of a negligent misrepresentation claim.” Ibid. I will refer again to Judge Walker’s construction of Section 10.12 of the contract, which defendants did not see fit to mention in their 103-page main brief, when I consider plaintiffs’ negligent misrepresentation claim infra. Suffice it to say at this juncture that I agree with him; and because I do, and for the other reasons stated, I reject defendants’ contention that section 12(2) is entirely inapplicable to this transaction. The September 5, 1986 “oral communication” falls within the statute. Defendants Weber and Nevins make the alternative argument that they were not statutory sellers. Section 12(2) liability extends to a person “who successfully solicits the purchase, motivated at least in part by a desire to serve his own financial interests or those of the securities owner.” Cortec Industries, Inc. v. Sum Holding L.P., 949 F.2d 42, 48 (2d Cir.1991), citing and quoting Pinter v. Dahl. Whether Weber or Nevins may be so characterized presents triable issues of fact. So does the issue of whether the C & D defendants exercised reasonable care, upon which those defendants will bear the burden of proof at trial. I deny defendants’ motion for summary judgment dismissing the section 12(2) claims. The RICO Claim In their fourth claim, plaintiffs charge all defendants with violating the RICO statute, 18 U.S.C. § 1962(c). They seek treble damages under § 1964(c). Defendants move to dismiss the RICO claim on the ground that their alleged conduct does not fall within the statute. 18 U.S.C. § 1962(c) makes it unlawful for persons employed by or associated with enterprises engaged in interstate or foreign commerce to conduct the affairs of such an, enterprise “through a pattern of racketeering activity ...” In H.J., Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989), the Supreme Court undertook to identify and define the ingredients and boundaries of a “pattern of racketeering activity,” Justice Brennan’s opinion commanded only a 5-4 majority, but it represents the Court’s most recent articulation of the governing principles. H.J. holds that a “pattern of racketeering activity” requires the combination of predicate acts related to each other and continuity of conduct. 492 U.S. at 239, 109 S.Ct. at 2900. As for relatedness, the H.J. majority derived from Title X of the Organized Crime Control Act of 1970, of which RICO formed Title IX, the rule that to be related, predicate acts must have “the same or similar purposes, results, participants, victims,