disclose the "step-up" in the purchase price of the two buildings--that is, the difference between the $ 2,500,000 paid for the buildings by OBCR and the $ 5,300,000 ultimately paid by CROBA. Plaintiffs contend that the alleged scheme diminished the likelihood they would realize desired profits and appreciation, caused an inflated basis on the property for federal income tax purposes, and misled them into believing they would be afforded substantial depreciation and interest deductions.
The facts relevant to the present motions involve the roles played by Charles, an attorney who prepared a tax opinion letter, and Cohen, an accountant who prepared a report on the projected financial performance of the partnership. Both documents were attached to the private placement memorandum, which referred to Charles and Cohen as "experts."
Berg communicated with Charles in April 1980 and retained him to represent AREA in connection with the purchase in the bankruptcy court of the office buildings and land. In May 1980 Berg informed Charles that if the purchase was successful, Berg intended to syndicate the Property. Berg asked Charles to prepare a tax opinion letter for AREA to use in syndicating the property. He gave Charles a draft letter that he claimed he and a tax attorney had drafted. Berg asked Charles to review the letter and the proposed private placement memorandum. Charles reviewed the letter, conducted legal research, revised the letter, and agreed to sign it as revised. Berg and Charles agreed on the revised letter on June 13, 1980, and Berg put it on Charles's stationary. The letter states that the purchase price of $ 5.3 million reflects the fair market value of the property as determined by AREA, and that the opinion would be amended to reflect any variation between information in the memorandum and later developed facts.
Several weeks later Berg told Charles that he would not request Charles to sign the letter and would not send it to proposed investors until after the closing of title on the property. In fact, Berg in July 1980 actively started soliciting limited partners through the private placement memorandum, which included Charles's tax opinion letter. Sometime prior to December 1980, Charles learned that Berg was selling interests in the syndication. Charles claims, however, that he was unaware his tax opinion letter was part of the private placement memorandum.
Around this same time, Charles helped obtain bankruptcy court approval of the proposed AREA purchase and prepared the documentation necessary to close title. The closing took place at two meetings, on December 15, 1980 and January 13, 1981. Charles and Berg had agreed on a flat fee of $ 9,000, plus costs, for all of Charles's legal services. The fee was paid in full at the final closing. Two weeks later, at Berg's request, Charles executed the tax opinion letter and sent it to Berg. Thereafter, Charles provided limited legal services to Berg and his controlled entities.
An important event during the syndication of CROBA was the preparation of a draft "errata" sheet that was meant to inform prospective investors of, inter alia, (1) the purchase out of bankruptcy for $ 2,500,000, (2) Berg's full role in the transaction, and (3) the step-up in price from $ 2.5 million to $ 5.3 million. Charles received the errata sheet sometime in November 1980 and was told by Berg not to worry about it. Plaintiffs claim that they never received the errata sheet and, therefore, that they never knew these material facts before purchasing their interest in CROBA.
As for Cohen, Berg retained him in June 1980 to review a set of financial projections for the limited partnership and to prepare and sign a forecast letter to be included in the private placement memorandum. Berg gave Cohen a set of projections, assumptions on which the projections were based, and a draft forecast letter. In July 1980 Cohen prepared the forecast letter and delivered it to Berg for inclusion in the private placement memorandum. The language of the letter on which Plaintiffs stake their claims against Cohen reads:
My review [of AREA's projections and assumptions] included tests of the computations, inquiries as to the methods of compiling the data set forth in the projections, discussions with officials of the General Partner [AREA] and such other procedures as I considered necessary in the circumstances. No other verification procedures were applied. I believe that the assumptions and rationale underlying the projected financial statements are reasonable for the purposes of these projections.