2002 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

3-27-2002

Laken v. Fryer Grp Co

Precedential or Non-Precedential:

Docket 00-4302

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2002

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 2002 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

Recommended Citation

"Laken v. Fryer Grp Co" (2002). 2002 Decisions. Paper 220.

http://digitalcommons.law.villanova.edu/thirdcircuit_2002/220
 NOT PRECEDENTIAL 

 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 

 No. 00-4302 

 

 EVELYN LAKEN; ALAN LAKEN, as a party in his own 

 right and as Executor of the Estate of Morton Laken 

 

 v. 

 FRYER GROUP OF COMPANIES, Unincorporated Association; 

 PARK SECURITIES, LTD.; KEITH FRYER; NAOMI LESLIE FRYER; 

 NICOLE EPSTEIN; MICHAEL FRYER; MARK FRYER; CENTRAL 

 SECURITIES, LTD.; NEWHALL SECURITIES, LTD.; TRICORN 

 TRUST, LTD.; EQUITY INVESTMENTS, LTD.; RONALD JAY BAYER, Esq. 

 

 Ronald Jay Bayer, Esquire, 

 Appellant. 

 

 On Appeal from the United States District Court 

 for the Eastern District of Pennsylvania 

 (D.C. No. 97-cv-04413) 

 District Judge: Honorable John P. Fullam 

 

 Argued: January 16, 2002 

 BEFORE: SCIRICA, GREENBERG and BRIGHT, Circuit Judges 

 (Filed: March 27, 2002) 

 

 MEMORANDUM OPINION OF THE COURT 

 

Jeffrey B. McCarron, Esq. (Argued) 

Swartz, Campbell & Detweiler 

1601 Market St., 34th Floor 

Philadelphia, PA 19103 

Counsel for Appellant 

James J. West, Esq. (Argued) 

105 N. Front St. 

Harrisburg, PA 17101 

Counsel for Appellees 

 

BRIGHT, Circuit Judge. 

 I. Introduction 

 Much of the factual background of this lawsuit is described in the related case, 

Westport Ins. Corp. v. Bayer, __ F.3d __ (3d Cir. 2002). We refer the reader to that 

opinion for a more complete statement of the facts than we present here. In this opinion 
we develop only those facts necessary to our holding. 

 Beginning in 1994, Morton and Alan Laken, father and son, solicited by their 

friend, Leonard Brown, made a series of investments in a sham mortgage business Keith 

Fryer claimed to run in England. In reality, Fryer ran a Ponzi-type confidence scheme in 

which he borrowed money from investors on installment notes that listed high interest 

rates. Fryer paid interest to early investors using money received from later investors. 

By the time Fryer’s scheme was exposed, the Lakens had purchased a total of 

$678,009.59 worth of installment notes and received no money in return. 

 Bayer, Brown’s friend and attorney, negotiated Brown’s commission arrangement 

with Fryer, under which Brown received a percentage of the investments he solicited 

from others, like the Lakens. Bayer received one-third of all commissions due Brown. 

 In July 1997, the Lakens filed suit in federal district court against Bayer, Fryer, 

Fryer’s corporations, and the officers of those corporations. The Lakens alleged RICO 

violations by all defendants except Bayer, and stated various state law claims against all 

defendants. In October 1997, the district court entered default judgment against Keith 

Fryer. Also in October, Bayer moved the court to dismiss the state law claims against 

him without prejudice pursuant to the supplemental jurisdiction statute, 28 U.S.C. 1367. 

The court denied the motion. Bayer was the sole defendant remaining when the Lakens’ 

suit came to trial on November 16, 2000. The district court issued a decision finding for 

the Lakens and against Bayer on their negligent misrepresentation claims. The court 

entered judgment in the Lakens’ favor for $678,009.59. 

 In its memorandum decision, the district court found the following facts regarding 

Bayer’s actions and his relationship to the Lakens. The Lakens never retained Bayer to 

act as their attorney, but Bayer created the impression that he was "looking out for" the 

Lakens’ interests. Bayer permitted the Lakens to believe that he had "checked out" 

Fryer’s activities. The Lakens relied on the information they received from Bayer. 

Bayer claimed to have done a "due diligence" investigation and let it be known that he 

had gone to England as part of the investigation. In reality, Bayer investigated very little. 

 The trial court concluded that these facts provided a basis for Bayer’s liability. 

The gist of the trial court’s holding is the following: 

 At no time did Mr. Bayer make any attempt to verify the existence of 

 any of Mr. Fryer’s corporations, or his credit rating. Even the most 

 perfunctory investigation would have disclosed that the alleged corporations 

 did not exist, and that Mr. Fryer had judgments recorded against him 

 totaling more than $2 million. It would also have been relatively easy to 

 establish the fact that Mr. Fryer’s license to lend money had been revoked 

 because of his earlier usurious activities. 

 There thus can be no question about the fact that Mr. Bayer was 

 negligent indeed, grossly negligent. He apparently allowed the prospect 

 of a high rate of return on his own investments, and lucrative finder’s fees, 

 to cloud his judgment. 

Laken v. Fryer Group of Cos., No. 97-4413, slip op. at 9 (E.D. Pa. Nov. 17, 2000). 

 Bayer appeals the judgment, arguing: (1) the district court lacked subject matter 

jurisdiction over the Lakens’ claims against Bayer; (2) there was insufficient evidence to 

establish Bayer’s liability for negligent misrepresentation; and (3) the Lakens’ recovery is 

barred by their contributory negligence. 

 II. DISCUSSION 

 A. Jurisdiction 

 The district court initially had federal question subject matter jurisdiction in this 

action due to the RICO allegations against all defendants but Bayer. Given the common 

nucleus of operative facts, there is no question that the state law claims against Bayer 

were properly before the court under 28 U.S.C. 1367(a) as long as the federal claims 

against the other defendants remained. 

 The Lakens voluntarily dismissed the federal claims against several defendants 

and the district court entered default judgment against another. Eventually, Bayer was the 

only remaining defendant. Bayer asserts that because the Lakens brought only state law 

claims against him, the district court did not have subject matter jurisdiction to enter 

judgment against him when he was the only defendant. 

 "[W]here the claim over which the district court has original jurisdiction is 
dismissed before trial, the district court must decline to decide the pendent state claims 

unless considerations of judicial economy, convenience, and fairness to the parties 

provide an affirmative justification for doing so." Hedges v. Musco, 204 F.3d 109, 123 

(3d Cir. 2000) (quoting Borough of West Mifflin v. Lancaster, 45 F.3d 780,788 (3d Cir. 

1995). 

 We conclude that judicial economy, convenience, and fairness to the parties were 

all served by the district court retaining jurisdiction of this case. The case had been in th

district court since 1997. Requiring the parties to start over in state court would be 

inconvenient as well as a waste of judicial resources. The district court properly 

exercised jurisdiction to hear this case. 

 B. Negligent Misrepresentation Claims 

 The district court sat as fact finder in this case. We review the court’s findings of 

fact only for clear error. See Fed. R. Civ. P. 52(a). 

 Under Pennsylvania law (as stated in the Restatement (Second) of Torts 552(1)): 

 One who, in the course of his business, profession or employment, or 

 in any other transaction in which he has a pecuniary interest, supplies false 

 information for the guidance of others in their business transactions, is 

 subject to liability for pecuniary loss caused to them by their justifiable 

 reliance upon the information, if he fails to exercise reasonable care or 

 competence in obtaining or communicating the information. 

See Rempel v. Nationwide Life Ins. Co., Inc., 370 A.2d 366, 367-68 (Pa. 1977); 

Eisenberg v. Gagnon, 766 F.2d 770, 778 (3d Cir. 1985). 

 The district court concluded that Bayer incurred a duty when he held himself out 

as an attorney who endorsed investment with Fryer and who had investigated Fryer’s 

businesses. Bayer knew that others considered him to be looking out for them despite the 

lack of an attorney-client relationship. Thus, according to the district court, Bayer 

incurred a duty either (1) to inform the Lakens that he was not protecting their interests or 

(2) to exercise reasonable care to avoid misrepresentations to them. 

 We agree that Bayer owed the Lakens a duty of reasonable care to avoid making 

misrepresentations about the Fryer investments or to inform them that he was not 

protecting their interests. "[W]hen a representation is made by professionals or those 

with greater access to information or having a special relationship to investors making use 

of the information, there is an obligation to disclose data indicating that the opinion or 

forecast may be doubtful." Eisenberg, 766 F.2d at 776 (internal quote marks omitted); 

see also Kline v. First W. Gov’t Secs., Inc., 24 F.3d 480, 490-91 (3d Cir. 1994) 

(recognizing "a limited duty to investigate and disclose when, by the drafter’s omission, a 

public opinion could mislead third parties."). 

 Bayer argues that a duty arises under 552 of the Restatement (Second) only when 

there is privity between the plaintiff and the defendant or the defendant had a pecuniary 

interest in the transaction. We assume, for purposes of argument, that Bayer’s statement 

of the law is correct. Given the amount of money involved, Bayer’s one-third interest in 

commissions is a significant pecuniary interest. Therefore, Bayer owed a duty to the 

Lakens. 

 Bayer next argues that he did not breach any duty of care applicable to him. He 

claims that he used due care to avoid providing false information. His argument relies 

heavily on disclaiming the district court’s findings of fact. However, Bayer does not 

point to evidence in the record showing the court’s findings to be in error. We are 

satisfied that the district court’s findings have adequate support in the record and, thus, 

are not clearly erroneous. 

 Bayer also argues that negligent misrepresentation claims require expert testimony 

to establish a standard of care. Bayer cites Bortz v. Noon, 729 A.2d 555, 563 (Pa. 1999), 

for this proposition. In Bortz, a plaintiff home buyer did not submit evidence sufficient to 

conclude that the standard of reasonable care for a real estate agent required the agent to 

investigate the accuracy of a title company’s statement that the purchased home’s septic 

system had passed a dye test. The Lakens’ claim against Bayer is not based on his failure 

to verify information received from a third party to the investment. Bayer’s situation is 

much more analogous to a realty agent who transfers information from seller to buyer and 

has a duty to verify the accuracy of the statements material to the transaction. Bortz itself 

distinguishes this scenario from its holding. Id. We conclude that Bayer breached his 
duty of reasonable care. 

 We also conclude that the Lakens justifiably relied on Bayer’s misrepresentations. 

We agree with the district court that Bayer’s professional status along with his 

involvement in Fryer’s investment "opportunity," made Bayer appear reliable and on the 

lookout for the interests of the other investors. Bayer negligently misrepresented the 

investments he promoted and the Lakens believed him. 

 We also conclude that Bayer’s negligent misrepresentation was the proximate 

cause of the Lakens’ injury. The district court found that Bayer’s negligent 

misrepresentation proximately caused the Lakens’ injury, and Bayer does not cite 

evidence sufficient to overturn that finding as clear error. 

 We affirm the district court’s determination that the Lakens have established 

negligent misrepresentation claims under Pennsylvania law. 

 C. Contributory Negligence 

 The district court determined that the Lakens were not contributorily negligent. 

The same facts that support a finding of justifiable reliance also serve to defeat any 

argument that the Lakens’ trust in the validity of the investments was negligent. The 

district court’s finding that the Lakens were not contributorily negligent is not clear error. 

 III. CONCLUSION 

 For the above reasons, we affirm the district court. 

 

TO THE CLERK: 

 Please file the foregoing memorandum opinion. 

 /s/ Myron H. Bright 

 Circuit Judge