Bluefeld v. Cohen et al
MEMORANDUM OPINION. Signed by Judge Paula Xinis on 4/27/2017. (ah4s, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
BARRY J. BLUEFELD
BARRY S. COHEN, et al.,
Civil Action No. PX 15-2857
Pending before the Court is Defendants’ Motion to Dismiss. ECF No. 100. The issues are
fully briefed and the Court now rules pursuant to Local Rule 105.6 because no hearing is
necessary. For the reasons stated below, the motion is granted.
On September 22, 2015, Plaintiff Barry J. Bluefeld (“Bluefeld” or “Plaintiff”), filed this
action on his own behalf and derivatively as a shareholder of Annuity Associates, Inc.
(“Annuity”) against Defendants Barry S. Cohen, Joel S. Meisel, and David H. Cohen
(collectively “Defendants”). Plaintiff was granted leave to file an Amended Complaint, ECF No.
30, and did so on April 13, 2016. ECF No. 31.
According to Plaintiff, since Annuity’s incorporation in 1984, Defendant Barry Cohen
has served as a director and Secretary/Treasurer and Defendant Joel Meisel has served as a
director and President. As of September 19, 2012, Barry Cohen and Joel Meisel owned 23.5%
and 18.5% of Annuity’s Class A voting shares, respectively. Defendant David Cohen is the
property manager for the Benson Business Center, which a commercial real estate building and
Annuity’s sole asset. ECF No. 31 at 3. David Cohen acquired a small Class A interest in July
Cumulatively, Plaintiff’s Amended Complaint asserts claims of racketeering and
conspiracy in violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18
U.S.C. §§ 1962–1964, and state law claims of fraudulent misrepresentation, conversion, unjust
enrichment, breach of fiduciary duty, and fraud. ECF No. 31 at 10–48. First, Plaintiff contends
that the Benson Business Center was intentionally left unoccupied which “artificially” reduced
the value of the corporate assert and thus minority shareholders stake in the corporation. ECF
No. 31 at 7. Plaintiff alleges that Defendants fraudulently hid the vacancy status of the Benson
building when communicating to investors and on Annuity’s profit and loss statements. ECF No.
31 at 8.
Additionally, Plaintiff alleges that Defendants defrauded Plaintiff and ten other Class B
minority non-voting shareholders by diverting money “to pay personal expenses and expenses of
other companies in which the Defendants control and own” without disclosing the transactions to
minority shareholders. ECF No. 31 at 2. These alleged fraudulent transactions include the
distribution monies to Defendants, the over-payment of management fees, payments to outside
companies working on unrelated properties from the assets of Annuity, and the excessive
payment of distributions to persons associated with Defendants. ECF No. 31 at 10.
On September 21, 2016, Plaintiff’s third and final counsel withdrew his appearance. ECF
No. 54. On October 4, 2016, Plaintiff then informed the Court that he would not be retaining new
counsel and instead would proceed pro se. ECF No. 59 at 1. On November 23, 2016, Defendants
filed a pre-motion letter seeking leave of the Court to file a motion to dismiss. ECF No. 82. On,
December 16, 2016, the Court granted Plaintiff one month to obtain new counsel, after which
time Defendants could file their motion to dismiss. ECF No. 91. Plaintiff appealed this Court’s
order on January 11, 2017, which is currently pending before the United States Court of Appeals
for the Fourth Circuit.1
Since the Court’s December 16, 2016 order, no counsel for Plaintiff has entered an
appearance. Thus, as permitted by the Court’s Order, Defendants filed the instant motion on
February 1, 2017. ECF No. 100.
As a threshold matter, the Court must determine whether it has jurisdiction to adjudicate
Defendants’ motion to dismiss in light of Plaintiff’s most recent appeal of this Court’s December
16, 2016 Order. “[W]hile the filing of a notice of appeal ‘confers jurisdiction on the court of
appeals and divests the district court of control over those aspects of the case involved in the
appeal[,]’” the district court does not lose jurisdiction when the litigant takes an appeal from an
unappealable order. United States v. Jones, 367 F. App’x 482, 484 (4th Cir. 2010) (quoting
Griggs v. Provident Consumer Disc. Co., 459 U.S. 56, 58 (1982) (citing Ruby v. Sec’y of United
States Navy, 365 F.2d 385, 389 (9th Cir. 1966) (en banc))); accord Wright & Miller, 16A Fed.
Prac. & Proc. Juris. § 3949.1 (4th ed.) (“The weight of authority holds that an appeal from a
clearly non-appealable order fails to oust district court authority; older cases holding to the
contrary have been rejected.”) (footnotes omitted); McKesson HBOC, Inc. v. Islamic Republic of
Iran, 315 F. Supp. 2d 63, 66 (D.D.C. 2004) (“[A] notice of appeal from an unappealable order
does not divest the district court of jurisdiction.”); U.S. v. Brooks, 145 F.3d 446, 456 (1st Cir.
Plaintiff also appealed the Court’s orders granting Defendants’ motion to strike, see ECF No. 61, and
denying Plaintiff leave to amend his complaint, see ECF No. 85, both of which have been dismissed by
the Fourth Circuit Court of Appeals. See ECF No. 103 (dismissal as to ECF No. 61); ECF No. 104
(dismissal as to ECF No. 85)
1998) (“[A] district court can proceed, notwithstanding the filing of an appeal, if the notice of
appeal is defective in some substantial and easily discernible way (if, for example, it is based on
an unappealable order) or if it otherwise constitutes a transparently frivolous attempt to impede
the progress of the case.” ); see also Hammon v. Barry, 752 F. Supp. 1087, 1092 (D.D.C. 1990)
(“Instead of allowing [a party] to willy-nilly deprive [a] Court of jurisdiction, thus bringing . . .
proceedings to a standstill while a non-appealable ruling wends its way through the appellate
process, the Court [may] disregard the notice of appeal from a non-appealable order and proceed
with the case.”) (internal citations and quotation marks omitted).
Here, Plaintiff appealed a non-final order for which no right to appeal has been triggered.
Nor did Plaintiff obtain a certificate of appealability from this Court to pursue an appeal from an
interlocutory or collateral order. See United States v. Hinton, 420 F. App’x 270, 270 (4th Cir.
2011) (dismissing appeal where denial of motion for recusal was “neither a final order nor an
appealable interlocutory or collateral order”); Poux v. FCI Bennettsville SC, 418 F. App’x 157,
157 (4th Cir. 2011) (dismissing appeal of order staying discovery); Stephens v. Muncy, 918 F.2d
174 (4th Cir. 1990) (dismissing appeal of order granting leave to file motion to dismiss).
Accordingly, the Court retains jurisdiction over the case.
B. Defendants’ Motion to Dismiss
Defendants primarily argue that this case must be dismissed for lack of prudential
standing because Plaintiff has brought a derivative shareholder action which he cannot now
maintain pro se.2 Generally, a shareholder lacks prudential standing to assert a direct claim for
Defendants incorrectly cite to Rule 12(b)(1) and refer to lack of constitutional standing, while arguing
dismissal for lack of prudential standing properly pursued under Rule 12(b)(6). See ECF No. 100-1 at 1.
Unlike standing conferred by Article III of the United States Constitution, prudential standing concerns
“‘judicially self-imposed limits on the exercise of federal jurisdiction.’ ” Doe v. Va. Dep’t of State Police,
713 F.3d 745, 753 (4th Cir. 2013) (quoting Allen v. Wright, 468 U.S. 737, 751 (1984)), and dictates “that
injuries to a corporation. Franchise Tax Bd. of Cal. v. Alcan Aluminium Ltd., 493 U.S. 331, 336
(1990) (noting that the “shareholder standing rule” is a matter of prudential standing “that
generally prohibits shareholders from initiating actions to enforce the rights of the corporation
unless the corporation’s management has refused to pursue the same action for reasons other
than good-faith business judgment”); see Rivers v. Wachovia Corp., 665 F.3d 610, 614–15 (4th
Cir. 2011); Rawoof v. Texor Petroleum Co., 521 F.3d 750, 757 (7th Cir. 2008) (finding that an
individual’s status as the sole shareholder, officer, and director of a corporation that owned a gas
station did not give him standing to assert a breach of a franchise agreement with the
corporation); cf. Gen. Technology Applications, Inc. v. Exro Ltda., 388 F.3d 114, 119 (4th Cir.
2004) (holding that a member of a limited liability company (“LLC”) lacked standing to assert
the LLC’s claims). In other words, a suit to recover damages to a corporation can only be
brought by the corporation itself through a derivative action, and not by individual shareholders.
Argiropoulos v. Kopp, No. CCB-06-0769, 2007 WL 954747, at *5 (D. Md. Mar. 26, 2007).
By way of derivative action, an individual shareholder may bring “suit to enforce a
corporate cause of action against officers, directors, and third parties.” Ross v. Bernhard, 396
U.S. 531, 534 (1970). The derivative action places in the hands of the individual shareholder a
means to protect the interests of the corporation from the misfeasance and malfeasance of
“faithless directors and managers.” Cohen v. Beneficial Loan Corp., 337 U.S. 541, 548 (1949).
To determine whether a claim is derivative for standing purposes, the Court must
consider who suffered the alleged harm and who would receive the benefit of any recovery or
the plaintiff generally must assert his own legal rights and interests, and cannot rest his claim to relief on
the legal rights or interests of third parties.” Warth v. Seldin, 422 U.S. 490, 499 (1975); United States v.
Day, 700 F.3d 713, 721 (4th Cir. 2012) (stating that “issues of prudential standing are nonjurisdictional”). This Court, therefore, treats Defendants’ motion as one brought under Rule 12(b)(6) for
lack of prudential standing.
remedy. A civil action “to recover damages for an injury to a corporation can be brought only in
the name of the corporation itself acting through its directors, and not by an individual
stockholder though the injury may incidentally result in diminishing or destroying the value of
the stock.” Jolly Roger Fund LP v. Sizeler Prop. Inv’rs, Inc., No. RDB 05-841, 2005 WL
2989343, at *5 (D. Md. Nov. 3, 2005) (quoting Waller v. Waller, 187 Md. 185, 189 (1946)).
Even where “wrongful acts were done maliciously with intent to injure a particular stockholder,”
the action must be brought as a derivative claim. Id. (quoting Danielewicz v. Arnold, 137 Md.
App. 601, 617 (2001)). See also Rivers v. Wachovia Corp., 665 F.3d 610, 615 (4th Cir. 2011)
(“Prohibiting individual suits to recover for injuries that result in the decline in value of a
corporation’s stock is understandable, for ‘the gravamen of [the] complaint is an injury to the
corporation and not to the individual interest of the shareholder.’”(quoting Hite v. Thomas &
Howard Co. of Florence, 409 S.E.2d 340, 342 (1991) (alteration in original)).
By contrast “[w]here a shareholder alleges an injury that is distinct from the corporation .
. . the individual shareholder has standing to redress that injury.” Argiropoulos v. Kopp, No.
CCB-06-0769, 2007 WL 954747, at *5 (D. Md. Mar. 26, 2007) (citing Strougo v. Bassini, 282
F.3d 162, 171 (2d Cir. 2002) (applying Maryland law)); cf. Jolly Roger Fund LP v. Sizeler Prop.
Inv’rs, Inc., No. RDB 05-841, 2005 WL 2989343, at *4 (D. Md. Nov. 3, 2005) (“To bring a
direct suit, the stockholder’s claimed direct injury must be independent of any alleged injury to
the corporation.”). Importantly, regardless of the “label the plaintiff gives” the suit, a court must
look to the nature of the action as set forth in the complaint to determine whether it is derivative
or direct. Jolly Roger Fund, 2005 WL 2989343, at *4 (quoting Paskowitz v. Wohlstadter, 151
Md. App. 1, 10 (2003)).
Here, Plaintiff has alleged that Defendants engaged in a protracted and complex RICO
conspiracy that injured the corporation, and thus the shareholders. Specifically, Plaintiff claims
that Defendants syphoned corporate funds to pay personal and other expenses and failed to
disclose such expenditures to the shareholders. Plaintiff further alleges that Defendants
mismanaged the Benson Business Center, thereby devaluing the corporate asset, and then took
steps to cover up the wrongdoing. At bottom, Plaintiff’s RICO claims set out classic corporate
injury, and by extension, injury to all shareholders. Plaintiff’s claims, therefore, are properly
considered derivative for which Plaintiff lacks standing to bring as a direct action.
Further, because Plaintiff is proceeding pro se, he cannot maintain a derivative action.
See, e.g., Phillips v. Tobin, 548 F.2d 408, 411–12 (2d Cir. 1976) (preventing pro se plaintiff from
bringing shareholder derivative suit); Romman ex rel. Yuhe Int’l, Inc. v. Zhentao Gao, No. 2:11CV-01178-MMD, 2013 WL 1811972, at *1 (D. Nev. Apr. 29, 2013) (same); Pinnavaia v.
Moody-Stuart, No. 09-03803 CW, 2009 WL 4899218, at *3 (N.D. Cal. Dec. 11, 2009) (same);
Weaver v. State of N.Y., 7 F. Supp. 2d 234, 237 (W.D.N.Y. 1998) (“It is also well established that
a layperson may not appear pro se to pursue a shareholder’s derivative suit.”) (citations omitted);
Robinette v. Merrill Lynch, No. 3:97-CV-0353D, 1998 WL 641815, at *1 (N.D. Tex. Sept. 16,
1998). This is because a derivative suit is “a cause of action that belongs to the corporation,”
Shoregood Water Co., Inc. v. U.S. Bottling Co., No. RDB-08-2470, 2010 WL 723763, at *6 (D.
Md. Feb. 24, 2010), and pro se individuals “may only represent themselves” in actions before
this Court. Local Rule 101(a). Accord Fowler v. Lee, 18 F. App’x 164 (4th Cir. 2001) (pro se
litigant cannot represent a class); Oxendine v. Williams, 509 F.2d 1405, 1407 (4th Cir. 1975)
Plaintiff argues, however, that the RICO counts are saved because he alleges separate and
distinct injury visited on him. Plaintiff specifically points to a single predicate RICO act
describing Defendants’ improper withholding of $ 4,110 in nonresident taxes from Plaintiff’s
2012 distribution payment. Plaintiff is incorrect.
To sustain a civil RICO claim, Plaintiff must allege a pattern of racketeering activity. The
acts constituting the pattern must be both related and pose a threat of continued criminal activity.
US Arline Pilots Assoc. v. AWAPPA, Inc., 615 F.3d 312, 318 (4th Cir. 2010). Related activity
includes predicate acts “that have the same or similar purposes, results, participants, victims, or
methods of commission, or otherwise are interrelated by distinguishing characteristics and are
not isolated events.” H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 240 (1989) (quoting
18 U.S.C. § 3575(e)) (internal quotation marks omitted). To establish continuity, Plaintiff must
aver either the threat of continuity or “a series of related predicates extending over a substantial
period of time.” Id. at 242. These elements of a civil RICO claim are of central importance in
light of “Congress’ desire to limit RICO’s application to ‘ongoing unlawful activities whose
scope and persistence pose a special threat to social well-being.’” US Arline Pilots Assoc., 615
F.3d at 318 (quoting Al–Abood ex rel. Al–Abood v. El–Shamari, 217 F.3d 225, 238 (4th Cir.
2000)). Accordingly, Plaintiff’s sole predicate act that describes injury distinct to him is simply
insufficient to constitute a pattern of racketeering activity.
What is more, Plaintiff’s single claimed act of malfeasance which injured him bears no
resemblance to the larger RICO scheme as pleaded. The remaining twenty-three predicate acts
alleged in the Amended Complaint detail how Defendants took funds for their own personal use
and otherwise devalued Annuity by (1) writing checks to companies in which Defendants had
personal business interests, (2) disguising funds obtained for Defendants’ own personal use as
corporate “losses,” (3) paying Defendants’ personal tax liability with Annuity’s funds, (4) paying
grossly excessive management fees to themselves, (5) devaluing the corporate assets to reduce
shareholder distributions. By contrast, Plaintiff’s claimed act of improper tax overpayment is not
part of the alleged scheme’s objective to “devalue” shareholder interest in Annuity. ECF No. 31
at 2. See Bailey v. Atl. Auto. Corp., 992 F. Supp. 2d 560, 584 (D. Md. 2014) (dismissing RICO
claim where “Plaintiff has alleged only one instance of specific fraudulent conduct directed at
her.”); cf. Gillmor v. Thomas, 490 F.3d 791, 797 (10th Cir. 2007) (finding statutory standing
sufficiently pleaded where “[a]lthough many of the acts constituting an alleged pattern of
racketeering activity involve non-parties, . . . [plaintiffs] also allege several predicate acts
directed toward them.”).3
Finally, although Plaintiff may allege that this single act visits harm to him, that act as
pleaded is not even properly considered “racketeering activity” as defined by § 1962. Plaintiff
avers that this misconduct constitutes wire fraud because emails were exchanged, but he fails to
allege that Defendants acted fraudulently or for their own use and benefit by means of false and
fraudulent pretenses. Withholding too much tax, without more, does not constitute racketeering,
Since Gillmor, the Supreme Court has clarified “that what has been called ‘statutory standing’ in fact is
not a standing issue, but simply a question of whether the particular plaintiff ‘has a cause of action under
the statute.’” Am. Psychiatric Ass’n v. Anthem Health Plans, Inc., 821 F.3d 352, 359 (2d Cir. 2016)
(quoting Lexmark Int’l, Inc. v. Static Control Components, Inc., 134 S.Ct. 1377, 1387 (2014)). “This
inquiry ‘does not belong’ to the family of standing inquiries, id., because ‘the absence of a valid . . . cause
of action does not implicate subject-matter jurisdiction, i.e., the court’s statutory or constitutional power
to adjudicate the case.’” Id. quoting Lexmark, 134 S.Ct. at 1386 n.4 (emphasis in original); see also Nw.
Airlines, Inc. v. County of Kent, 510 U.S. 355, 365 (1994) (“The question whether a federal statute creates
a claim for relief is not jurisdictional.”). Accord CGM, LLC v. BellSouth Telecommunications, Inc., 664
F.3d 46, 52 (4th Cir. 2011) (comparing dismissal for lack of statutory standing to dismissal for failure to
state a claim under Fed. Rule. Civ. Proc. 12(b)(6)). Thus, the sufficiency of Plaintiff’s individual RICO
claim is properly examined under Rule 12(b)(6) for failure to state a claim.
let alone an act of racketeering consistent with the RICO count as pleaded. This predicate act is
simply insufficient and cannot save Plaintiff’s RICO claims.4
C. Remaining State Law Claims
Apart from Plaintiff’s RICO claims, the Amended Complaint also alleges that Defendants
committed the common law torts of fraudulent misrepresentation, conversion, unjust enrichment,
breach of fiduciary duty, and fraud. The Court’s original jurisdiction pursuant to 28 U.S.C. §
1331 arose from the federal RICO claims.5 However, once the federal claims are dismissed, the
court may, in its discretion, decline to exercise to its supplemental jurisdiction and dismiss the
pendant state law claims as well. 28 U.S.C. § 1367(c)(3); see Int’l Ass’n of Machinists &
Aerospace Workers v. Werner–Masuda, 390 F. Supp. 2d 479, 500 (D. Md. 2005). Given that this
case is in its infancy and the remaining claims squarely sound in state common law, the Court
will dismiss the remaining claims without prejudice.
Plaintiff’s RICO conspiracy count is also dismissed on identical grounds. See Walters v. McMahen, 684
F.3d 435, 445 (4th Cir. 2012); cf. Robinson v. Fountainhead Title Grp. Corp., 252 F.R.D. 275, 283 n.9
(D. Md. 2008) (citing Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1191 (3d Cir. 1993) (“Any claim
under section 1962(d) based on a conspiracy to violate any of the other subsections of section 1962
necessarily must fail if the substantive claims are themselves deficient.”)).
Because the Amended Complaint asserts that all parties are citizens of Maryland, this Court cannot
maintain diversity jurisdiction under 28 U.S.C. § 1332, contrary to Plaintiff’s jurisdictional statement.
Amended Complaint, ECF No. 31 at 1-3, 5.
For the foregoing reasons, Defendants’ motion to dismiss is granted. Plaintiff’s RICO
claims (Counts I and II) are dismissed without prejudice for lack of prudential standing. Plaintiff
may refile should he retain counsel. Counts III through VII are likewise dismissed without
prejudice so that Plaintiff may pursue these claims in state court.
United States District Judge
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