The Sands Harbor Marina Corp. et al v. Wells Fargo Insurance Services of Oregon, Inc.

Filing 235

MEMORANDUM & ORDER granting in part and denying in part 157 Motion to Dismiss for Lack of Jurisdiction; granting in part and denying in part 157 Motion to Dismiss for Failure to State a Claim; granting in part and denying in part 177 Motion to Dismiss; granting 182 Motion for Leave to File; granting in part and denying in part 189 Motion for Judgment on the Pleadings; granting in part and denying in part 196 Motion for Judgment on the Pleadings. For the foregoing reasons, D efendants' motions are GRANTED IN PART and DENIED IN PART. Specifically, Reis's motion to dismiss (Docket Entry 157) and the T&N Defendants' motion for judgment on the pleadings (Docket Entry 196) are DENIED. Reis's motion to dism iss Wells Fargo's cross-claim for indemnification and contribution is GRANTED, however, Wells Fargo's motion to amend (Docket Entry 182) is also GRANTED. Wells Fargo may file and serve amended cross-claims within thirty (30) days of the dat e of this Memorandum & Order. Wells Fargo's motion for judgment on the pleadings (Docket Entry 189) is GRANTED IN PART and DENIED IN PART. Specifically, Wells Fargo's motion is GRANTED to the limited extent that Plaintiffs common law negligence claims against Wells Fargo are DISMISSED WITH PREJUDICE, but otherwise DENIED. So Ordered by Judge Joanna Seybert on 1/13/2016. C/ECF (Valle, Christine)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
---------------------------------------X
THE SANDS HARBOR MARINA CORP.,
SANDS HARBOR MARINA LLC, THE SANDS
HARBOR MARINA OPERATING CORP.,
SANDS MARINA OPERATING LLC,
GREG W. EAGLE, PINE CREEK RANCH,
LLC, and UNIVERSITY 1248, LLC,
Plaintiffs,

MEMORANDUM & ORDER
09-CV-3855(JS)(AYS)

-against–
WELLS FARGO INSURANCE SERVICES OF
OREGON, INC., WELLS FARGO BANK,
N.A., EVMC REAL ESTATE CONSULTANTS,
INC., LARRY ESACOVE, THE ESTATE OF
AIDA ESACOVE, DAVID P. GUILOT,
ANTHONY B. CHOPRA, TISDALE &
NICHOLSON, LLP, JEFFREY A. TISDALE,
GUY C. NICHOLSON, and MICHAEL D.
REIS,
Defendants.
---------------------------------------X
APPEARANCES
For Plaintiffs:
Roy A. Klein, Esq.
Law Offices of Roy A. Klein
532 Broad Hollow Road, Suite 144
Melville, NY 11747
For the Wells Fargo
Defendants:

Jason Ederer, Esq.
Jennifer H. Feldscher, Esq.
Peter J. Biging, Esq.
Goldberg Segalla LLP
780 Third Avenue, Suite 3100
New York, NY 1001
Jura C. Zibas, Esq.
Wilson Elser
150 East 42nd Street, 21st Floor
New York, NY 10017
Sanem Ozdural, Esq.
Lewis, Brisbois, Bisgaard & Smith, LLP

77 Water Street, Suite 2100
New York, NY 10005
For the T&N Defendants:

Gregory John Radomisli, Esq.
Martin, Clearwater & Bell
220 East 42nd Street
New York, NY 10028

For Defendant Reis:

Michael D. Reis, pro se
3017 E. Nisbet Rd.
Phoenix, AZ 85032

For Defendants EVMC,
Larry Esacove, the
Estate of Aida Esacove,
David P. Guilot,
Anthony B. Chopra:

No appearances.

SEYBERT, District Judge:
Pending before the Court are five motions filed by
Defendants for judgment on the pleadings and to dismiss the Third
Amended Complaint (“TAC”).
196).

(Docket Entries 157, 177, 182, 189,

For the reasons that follow, these motions are GRANTED IN

PART and DENIED IN PART.
BACKGROUND1
Plaintiffs

Sands

Harbor

Marina

Corp.,

Sands

Harbor

Marina LLC, The Sands Harbor Marina Operating Corp., Sands Marina
Operating LLC (collectively “Sands Harbor”); and Greg W. Eagle
(“Eagle”), Pine Creek Ranch, LLC, and University 1248, LLC’s

The following facts are taken from Plaintiffs’ TAC and are
presumed to be true for the purposes of this Memorandum and
Order. (See TAC, Docket Entry 147.)
1

2

(collectively

“the

Eagle

Plaintiffs”

and

together

with

Sands

Harbor, “Plaintiffs”) commenced this action on September 4, 2009
against

Defendants

Nicholson”);
Nicholson,

Tisdale

Jeffrey
Esq.

A.

and

Nicholson,

Tisdale,

(“Nicholson”

Esq.

and

LLP

(“Tisdale

(“Tisdale”);

collectively

Guy

the

&
C.

“T&N

Defendants”); Michael D. Reis (“Reis”), Wells Fargo Insurance
Services of Oregon, Inc. (“WFIS”); Wells Fargo Bank, N.A. (“WFB”
and

together

with

WFIS,

“Wells

Fargo”);

EVMC

Real

Estate

Consultants, Inc. (“EVMC”); Larry Esacove; the estate of Aida
Esacove;

David

P.

Guilot

(“Guilot”);

and

Anthony

B.

Chopra

(“Chopra” and collectively “Defendants”).
Plaintiffs are companies and individuals engaged in the
business of property acquisition. (TAC ¶¶ 4-10.) All of the Sands
Harbor Plaintiffs are corporations and limited liability companies
organized under the law of the State of Florida, except Sands
Harbor Marina Corp., which is organized under the laws of the State
of New York.

The Sands Harbor Plaintiffs have their principle

places of business in New York.

(TAC ¶ 3.)

Eagle is a businessman

domiciled in Florida, while Pine Creek Ranch, LLC and University
1248, LLC are limited liability companies organized under the laws
of the State of Florida.

(TAC ¶ 5.)

Plaintiffs claim that

Defendants stole than $44 million from them through a fraudulent
scheme.

(TAC ¶ 1.)

3

At some point before August 2006, Defendants created
EVMC, a shell corporation that held itself out as a legitimate
financing company.
false

(TAC ¶¶ 13, 18.)

documentation

misrepresenting

development projects.
they

were

led

to

Defendants then composed
EVMC’s

(TAC ¶¶ 18-23.)

believe

that

EVMC

ability

to

fund

Plaintiffs assert that
could

provide

them

with

acquisition and construction financing to develop land in Florida.
(TAC ¶ 1.)

Based on this false premise, Plaintiffs were induced

to make payments to the law firm of Tisdale & Nicholson, believing
that the payments were necessary to pay expenses EVMC was incurring
to obtain the requested financing.
nothing

to

obtain

the

promised

(TAC ¶ 2.)

Yet EVMC did

financing--Defendants

divided Plaintiffs’ money among themselves.

simply

(TAC ¶ 2.)

Each Defendant played a unique role in the scheme.
Plaintiffs

allege

that

Larry

and

Aida

Esacove

were

the

“masterminds” behind the fraud and received approximately $8.3
million from the scheme. (TAC ¶ 24.) Mrs. Esacove, in particular,
directed distribution of the scheme proceeds and instructed the
co-Defendants regarding the scheme’s general operations.

(See,

e.g., TAC ¶¶ 43(c), 68, 70, 73-74, 76.)
Defendant Reis was Vice President of WFIS and received
approximately $600,000 for his role in the conspiracy. (TAC ¶ 29.)
Reis

sold

his

specifically,

access
created

to

Wells

false

and
4

Fargo

letterhead

misleading

and,

more

documentation,

including “proof-of-funds” letters on Wells Fargo letterhead,
which purported to show EVMC accounts blocked for Plaintiffs’
transactions.

(TAC ¶ 31.)

The impression that Wells Fargo could

vouch for EVMC’s financial soundness created the illusion that
EVMC was a legitimate business.

(TAC ¶ 31.)

At various points,

Reis also represented that the transactions were moving toward
closing by informing Plaintiffs that he was working on an insurance
structure with London-based Wells Fargo partners.

(TAC ¶¶ 32-33.)

In addition to Reis, Wells Fargo employee Kathy Maloney emailed
fraudulent proof-of-funds letters to Plaintiffs.

(TAC ¶ 31.)

The T&N Defendants allegedly contributed to the scheme
by laundering money through their firm’s attorney trust account.
The

T&N

Defendants

received

funds

into

their

attorney

trust

account, and the attorneys then distributed the funds to the coconspirators,

or

(TAC ¶¶ 60, 78.)

paid

the

Esacove’s

personal

expenses.

The T&N Defendants also used their reputations

to bolster the legitimacy of the conspiracy. (TAC ¶ 69.)
The first of four allegedly fraudulent transactions
detailed in the TAC took place in August 2006.
Plaintiffs

allege

that

the

Wells

Fargo

(TAC ¶ 86.)

Defendants,

the

T&N

Defendants, and the Esacoves convinced the Eagle Plaintiffs to
wire

$1,500,000

to

EVMC

for

acquisition

and

construction

financing. (TAC ¶ 89.) As part of this transaction, Reis provided
the Eagle Plaintiffs with documentation, sent by U.S. mail and
5

email, indicating that Wells Fargo supported the deal. (TAC ¶ 87.)
On August 31, 2006, the Eagle Plaintiffs wired $1,500,000 to EVMC
to apply for a $150,000,000 acquisition and construction loan.
(TAC ¶ 89.)
T&N

Twenty-two days after the $1,500,000 transfer, the

Defendants

conspirators.

dispersed

$624,598.81

of

the

amount

to

the

(TAC ¶ 94.)

A second transaction also took place in August 2006.
This time, however, Sands Harbor was the victim.

Reis sent Sands

Harbor literature, by U.S. mail and email, representing that Wells
Fargo had a relationship with EVMC and that EVMC could provide
large-scale financing.

(TAC ¶¶ 97-101.)

Reis participated in a

conference call on September 25, 2006 with Aida Esacove and David
Guilot in an effort to convince Sands Harbor to wire money to
Tisdale & Nicholson.

(TAC ¶ 101.)

Specifically, Reis reassured

Sands Harbor that, after their money was wired, he would send
letters

confirming

that

Wells

Fargo

finalizing the loan application.

was

in

(TAC ¶ 101.)

the

process

of

Reis also advised

Sands Harbor that Wells Fargo had a corporate “Client Services
Agreement” with EVMC under which Wells Fargo provided consulting
services to EVMC’s funding transactions.

(TAC ¶ 102.)

On October

10, 2006, Sands Harbor wired $1,000,221 to Tisdale & Nicholson.
(TAC ¶ 103.)

Once again, the T&N Defendants disbursed the funds

amongst the conspirators.
assured

Sands

Harbor

that

(TAC ¶ 104.)
the
6

At various times, Reis

transaction

was

moving

along

smoothly.

(TAC ¶¶ 107-112.)

financing from EVMC.

However, Sands Harbor never received

(TAC ¶ 116.)

The third transaction took place during November and
December 2006.

The conspirators sought an additional $500,000

from the Eagle Plaintiffs and, after receiving assurances from
Reis, the Eagle Plaintiffs wired Tisdale & Nicholson the additional
monies.

(TAC ¶¶ 117, 121, 124, 126, 133, 141.)

Subsequently, in

or about March 2007, EVMC and Wells Fargo provided Plaintiffs and
other victims with false assurances of performance.

(TAC ¶ 148.)

For

created

example,

on

March

29,

2007,

Reis

knowingly

delivered false proof-of-funds letters to Plaintiffs.

and

(TAC ¶¶

158, 164.)
Defendants then conducted one more transaction with
Eagle,

in

which

Defendants

asked

$6,375,000 from the Eagle Plaintiffs.

to

be

paid

an

additional

On September 6, 2007, Reis

emailed the Eagle Plaintiffs and advised that he had recently
discovered

the

Eagle

Plaintiffs

needed

development

funds

in

addition to acquisition funds. (TAC ¶ 219.) On November 27, 2007,
the Eagle Plaintiffs, relying on various representations made by
Reis, wired $6,375,000 to Tisdale & Nicholson.

(TAC ¶ 259.)

Shortly after that final transaction, Reis left Wells Fargo.

(TAC

¶ 40.)
Plaintiffs

brought

this

action

alleging

(1)

that

Defendants violated the Racketeer Influenced and Corrupt Act of
7

1970 (“RICO”), as codified by 18 U.S.C. § 1961 et seq., (2) seeking
declaratory relief under the federal Declaratory Judgment Act of
1946, as codified by 28 U.S.C. §§ 2201-2202, and (3) seeking relief
under

the

common

misrepresentation,

law

theories

negligence,

of

fraud,

restitution,

negligent

unjust

enrichment,

breach of fiduciary duty, and breach of contract.
¶¶ 328-731.)

(Am. Compl.

On February 19, 2013, the Court issued an Order

dismissing Plaintiff’s RICO claims against Wells Fargo, the T&N
Defendants, and Michael D. Reis.

See Sands Harbor Marina Corp. v.

Wells Fargo Ins. Servs. of Or., Inc., No. 09-CV-3855, 2013 WL
5295713, at *1 (E.D.N.Y. Sept. 18, 2013).

Following a round of

motions in 2014, the Court dismissed several more claims, including
(1) Plaintiffs’ fraud claim against Nicholson and (2) Plaintiffs’
negligence and breach of fiduciary duty claims against Reis. Sands
Harbor Marina Corp. v. Wells Fargo Ins. Servs. of Or., Inc., No.
09-CV-3855, 2014 WL 4374586, at *14 (E.D.N.Y. Aug. 29, 2014).
Plaintiffs filed the TAC in August 2014.
Pending before the Court are several motions filed by
the

T&N

Defendants,

(collectively

the

the

“Moving

Wells

Fargo

Defendants”).

Defendants,

and

Specifically,

Reis
the

following motions are before the Court: (1) Reis’s motion to
dismiss the TAC (Docket Entry 157); (2) Reis’s motion to Dismiss
the Wells Fargo Defendants’ cross-claims for indemnification and
contribution (Docket Entry 177); (3) Wells Fargo’s motion to file
8

and serve amended cross-claims (Docket Entry 182); (4) the Wells
Fargo Defendants’ motion for judgment on the pleadings (Docket
Entry 189); and (5) the T&N Defendants’ motion for judgment on the
pleadings (Docket Entry 196).

The Moving Defendants principally

argue that: (1) the Court does not have jurisdiction over Reis;
(2) the LLC Plaintiffs lack the capacity to sue because they were
dissolved; (3) Eagle’s claims should be barred under the doctrine
of in pari delicto; (4) Plaintiff’s claim for lost-profits should
be

dismissed;

and

(5)

that

Wells

Fargo’s

cross-claims

indemnification and contribution were not properly pleaded.

for
(See

Reis’s Br., Docket Entry 159, at i; Reis’s Cross-Claim Br., Docket
Entry 178, at i; the T&N Defs.’ Br., Docket Entry 198, at 12.)
DISCUSSION
The Court will first discuss legal standards applicable
to the Moving Defendants’ motions before turning to each parties’
arguments.
I.

Legal Standard
A.

Rule 12(b)(6) and 12(c)
In deciding a Rule 12(b)(6) motion to dismiss, the Court

applies a “plausibility standard,” which is guided by “[t]wo
working principles.”

Ashcroft v. Iqbal, 556 U.S. 662, 678, 12 S.

Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009) (citing Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 167 L. Ed. 2d 929
(2007)); accord Harris v. Mills, 572 F.3d 66, 71-72 (2d Cir. 2009).
9

First, although the Court must accept all allegations as true,
this

“tenet”

is

“inapplicable

to

legal

conclusions;”

thus,

“[t]hreadbare recitals of the elements of a cause of action
supported by mere conclusory statements, do not suffice.”

Iqbal,

556 U.S. at 678, 12 S. Ct. 1949; accord Harris, 572 F.3d at 72.
Second, only complaints that state a “plausible claim for relief”
can survive a Rule 12(b)(6) motion to dismiss.
679, 12 S. Ct. at 1950.

Iqbal, 556 U.S. at

Determining whether a complaint does so

is “a context-specific task that requires the reviewing court to
draw on its judicial experience and common sense.”

Id.; accord

Harris, 572 F.3d at 72.
Furthermore, in deciding a motion to dismiss, the Court
is confined to “the allegations contained within the four corners
of [the] complaint.”

Pani v. Empire Blue Cross Blue Shield, 152

F.3d 67, 71 (2d Cir. 1998) (citation omitted).

However, this has

been interpreted broadly to include any document attached to the
complaint,

any

statements

or

documents

incorporated

in

the

complaint by reference, any document on which the complaint heavily
relies, and anything of which judicial notice may be taken.

See

Chambers v. Time Warner, Inc., 282 F.3d 147, 152-53 (2d Cir. 2002)
(citations omitted); Kramer v. Time Warner Inc., 937 F.2d 767, 773
(2d Cir, 1991).
The standard for evaluating a motion for judgment on the
pleadings, pursuant to Rule 12(c), is the same as the standard for
10

a motion to dismiss under Rule 12(b).

See Karedes v. Ackerley

Grp., Inc., 423 F.3d 107, 113 (2d Cir. 2005).
B.

Rule 12(b)(1)
“A case is properly dismissed for lack of subject matter

jurisdiction under Rule 12(b)(1) when the district court lacks the
statutory or constitutional power to adjudicate it.”
United States, 201 F.3d 110, 113 (2d Cir. 2000).

Makarova v.

In resolving a

motion to dismiss for lack of subject matter jurisdiction, the
Court

may

consider

affidavits

and

other

material

pleading to resolve jurisdictional questions.

beyond

the

See Morrison v.

Nat’l Austl. Bank Ltd., 547 F.3d 167, 170 (2d Cir. 2008).

The

Court must accept as true the factual allegations contained in the
Complaint, but it will not draw argumentative inferences in favor
of the plaintiff because subject matter jurisdiction must be shown
affirmatively. See id.; Atlantic Mut. Ins. Co. v. Balfour Maclaine
Int’l Ltd., 968 F.2d 196, 198 (2d Cir. 1998); Shipping Fin. Servs.
Corp. v. Drakos, 140 F.3d 129, 131 (2d Cir. 1998).

The plaintiff

bears the burden of establishing subject matter jurisdiction by a
preponderance of the evidence.
II.

Morrision, 547 F.3d at 170.

Reis’s Motion to Dismiss the TAC
Reis

moves

jurisdictional grounds.

to

dismiss

the

TAC

(See Reis Br. at 3.)

primarily

on

Reis argued in his

first motion to dismiss, filed in January 2012, that the Court
lacked personal jurisdiction of over him.
11

(Reis’s Jan. 2012 Br.,

Docket Entry 80-1, at 19.)
that

point

in

its

However, the Court did not address

February

2013

Order.

Instead,

the

Court

dismissed Plaintiffs’ RICO claims against Reis and others, and
declined
claims.
Court

supplemental

jurisdiction

over

Plaintiffs

(Feb. 2013 Order, Docket Entry 108, at 42.)
later

reconsidered

its

prior

decision

state

law

Although the
and

allowed

Plaintiffs’ state law claims to proceed, the Court never addressed
Reis’s

personal

jurisdiction

original motion to dismiss.

argument

contained

within

his

Sands Harbor, 2014 WL 4374586, at *9.

The Court noted in its 2014 August Order that the issue had never
been properly briefed and declined to sua sponte address the point.
Id. at *10.

Two months after the Court issued its August 2014

Order reinstating Plaintiffs’ state law claims, Reis filed the
pending

motion

jurisdiction,

seeking

again

to

contending

dismiss
that

for
the

lack

Court

of

personal

lacks

personal

jurisdiction over him.
A.

Plaintiffs’ Waiver Argument
As an initial matter, Plaintiffs argue that Reis waived

his

personal

jurisdiction

argument

by

not

moving

for

reconsideration after the Court initially failed to address the
personal jurisdiction argument in Reis’s first motion to dismiss.
(Pls.’ Opp. Br., Docket Entry 179, at 8.)
There are two ways a litigant can waive the right to
assert the defense of lack of personal jurisdiction.
12

First, the

defense may be waived if it is not raised in the defendant’s
initial Rule 12 motion, or “include[d] . . . in a responsive
pleading or in an amendment allowed by Rule 15(a)(1) as a matter
of course.” FED. R. CIV. P. 12(h)(1)(B)(ii).
requirements

of

Rule

12(h)(1)

are

Second, even if the

satisfied,

a

personal

jurisdiction defense can also be forfeited because of a “delay in
challenging personal jurisdiction by motion to dismiss.”

Hamilton

v. Atlas Turner, Inc., 197 F.3d 58, 60 (2d Cir. 1999) (quoting
Datskow v. Teledyne, Inc., 899 F.2d 1298, 1303 (2d Cir. 1990)).
In Hamilton, for example, the Second Circuit found that a Canadian
defendant waived his right to challenge personal jurisdiction by
not moving to dismiss on that basis during four years of pretrial
proceedings.

Id. at 61–62.

But see

Biro v. Conde Nast, No. 11-

CV-4442, 2014 WL 4851901, at *6-7 (S.D.N.Y. Sept. 30, 2014) aff’d,
No. 14-CV-3815, 2015 WL 8202599 (2d Cir. Dec. 8, 2015) (finding no
delay when defendant filed a motion to dismiss eleven months after
filing her Answer, during which time, the parties were engaging in
jurisdictional discovery); In re Helicopter Crash Near Wendle
Creek, British Columbia, 485 F. Supp. 2d 47, 51-52 (D. Conn. 2007)
(rejecting the argument that a defendant waived its challenge to
personal jurisdiction when it pleaded the defense in its answer,
but waited four months to file a motion to dismiss).
Plaintiffs

claim

that

Reis

jurisdiction defense due to delay.
13

forfeited

his

personal

In light of the somewhat

irregular procedural history of this case, however, the Court
disagrees.

There is no dispute that Reis properly raised the

personal jurisdiction defense in his initial motion to dismiss
under Rule 12.
move

for

Moreover, Reis cannot be penalized for failing to

reconsideration

of

the

Court’s

February

2013

Order

because, following that decision, Reis had every reason to believe
that this case had been completely dismissed against him.

After

the Court reinstated Plaintiffs’ state law claims, however, Reis
filed a renewed motion to dismiss on personal jurisdiction grounds
within two months.

Reis therefore did not forfeit his personal

jurisdiction argument and the Court must consider it.
B.

The Court has Long Arm Jurisdiction Over Reis
Whether the Court actually has personal jurisdiction

over Reis is a separate question.

“Personal jurisdiction over a

non-resident defendant in a federal diversity action is determined
by the law of the forum state”--in this case, New York’s long arm
statute.

Emerald Asset Advisors, LLC v. Schaffer, 895 F. Supp. 2d

418, 429 (E.D.N.Y. 2012).

On a motion to dismiss for lack of

personal jurisdiction, “the plaintiff bears the burden of showing
that the court has [personal] jurisdiction over the Defendant.”
Miller Inv. Trust v. Xiangchi Chen, 967 F. Supp. 2d 686, 690
(S.D.N.Y. 2013) (quoting Metro Life Ins. Co. v. Robertson-Ceco
Corp., 84 F.3d 560, 566 (2d Cir. 1996) (alteration in original)).
“Where a court has chosen not to conduct a full-blown evidentiary
14

hearing on the motion, the plaintiff need make only a prima facie
showing of jurisdiction through its own affidavits and supporting
materials.” Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez,
171 F.3d 779, 784 (2d Cir. 1999) (internal quotation marks and
citation omitted). Plaintiffs contend that this Court has personal
jurisdiction of Reis under CPLR 302(a)(3), because Reis committed
a tort outside of New York that caused injury in New York.
Under section 302(a)(3) of New York’s long arm statute,
a non-domiciliary can be subject to personal jurisdiction within
the state if he “commits a tortious act without the state causing
injury

to

person

§ 302(a)(3).

or

property

within

the

state.”

N.Y.

CPLR

To make out a prima facie case that a defendant is

subject to jurisdiction, the plaintiff’s allegations must satisfy
five elements: (1) the defendant committed a tortious act outside
the State; (2) the cause of action arises from that act; (3) the
act caused injury to a person or property within the State; (4)
the defendant expected or should reasonably have expected the act
to have consequences in the State; and (5) the defendant derived
substantial revenue from interstate or international commerce.
LaMarca v. Pak-Mor Mfg. Co., 95 N.Y.2d 210, 214, 735 N.E.2d 883,
886, 713 N.Y.S.2d 304 (N.Y. 2000).
first,

second,

satisfied.

fourth,

and

Reis does not contest that the

fifth

elements

of

the

test

are

The only dispute concerns the third element--whether

Reis’s actions caused Plaintiffs injury within New York.
15

(See

Reis’s Reply Br., Docket Entry 185, at 3-4.)
“To determine whether a tortious act caused injury in
New York, courts apply the situs-of-the-injury test, which asks
where

the

original

event

which

caused

the

injury

occurred.”

Miller, 967 F. Supp. 2d at 695 (internal quotation marks and
citation omitted).

In a case involving fraud, “the critical

question is [ ] where the first effect of the tort was located
that

ultimately

produced

Brussels, 171 F.3d at 792.

the

final

economic

injury.”

Bank

In Bank Brussels, for example, the

Second Circuit found that the situs of the injury to the Belgian
bank was in New York, where the bank first felt economic injury.
In that case, the bank sued a Puerto-Rican law firm for fraud,
claiming that the firm omitted key information from an opinion
letter the bank relied upon in issuing a line of credit to a
company.

Although the alleged omissions were made by the law firm

in Puerto-Rico, the court found that the situs of the injury was
in New York because the bank’s act of disbursing funds to the
company in New York was the “original event” that caused the bank
economic harm.

Id. at 793.

Other cases within the Second Circuit

have interpreted the situs-of-the-injury test similarly in cases
involving fraud.

See, e.g., Miller, 967 F. Supp. 2d at 696

(finding that the situs of the injury was outside of New York
because the complaint did not allege that the plaintiffs relied
upon any representations made in New York); Hargrave v. Oki
16

Nursery, Inc., 636 F.2d 897, 899-900 (2d Cir. 1980) (holding that
misrepresentations directed at a New York buyer about the quality
of grape vines located in California placed the situs of the injury
in New York.)
in

letters

According to the TAC, Reis made misrepresentations

and

emails

sent

to

New

York.

In

addition,

he

participated in at least one phone call with the New York-based
Sands Harbor Plaintiffs during which he sought to fraudulently
induce them to wire money to Defendants.

Moreover, Reis and his

co-conspirators were successful in convincing Sands Harbor to wire
them over one-million dollars.

Thus, the situs of the injury

inflicted upon Sands Harbor was in New York because Sands Harbor’s
financial loss occurred there.

Long arm jurisdiction over Reis

shall thus be upheld under CPLR 302(a)(3) on that basis.2
C.

Venue
Reis also moves to dismiss under Rule 12(b)(3) for

improper venue or, in the alternative, to transfer venue to the
United States District Court for the Central District of Oregon.
(Reis’s Br. at 6.)
motion to dismiss.

Reis made the same argument in his original
(Reis’s Jan. 2012 Br. at 20.)

But unlike the

Plaintiffs also argue that the Court has personal jurisdiction
over Reis under CPLR 302(a)(1) because Reis was “doing business”
in New York. (Pl.’s Opp. Br. at 10-13.) Since the Court finds
that it has personal jurisdiction over Reis under CPLR
302(a)(3), however, the Court need not analyze whether Reis was
“doing business” in New York.
2

17

question of personal jurisdiction over Reis, which the Court did
not address in its prior orders, the Court already ruled on the
question of proper venue.
*11.

In

its

August

See Sands Harbor, 2014 WL 4374586, at

2014

Order,

the

Court

explained

that

“communications [directed] toward persons in the District [could]
be enough” to properly place venue here.

Id.

And in light of

Reis’s alleged interactions with persons on Long Island, the Court
found that venue was proper in this district.

Id.

Thus, the issue

of proper venue was already decided in the Court’s August 2014
Order and need not be discussed further.
III. The LLC Plaintiffs Have the Capacity to Sue for the Limited
Purpose of Winding Up their Affairs
The Moving Defendants argue that Plaintiffs lack the
capacity to pursue this lawsuit because the State of Florida
administratively dissolved all of the LLC Plaintiffs in this case.
(Reis’s Br. at 15-16.3) There is no dispute that the LLC Plaintiffs
have been administratively dissolved.
that

they

can

still

prosecute

Plaintiffs claim, however,
this

action

because,

an

administratively dissolved limited liability company may continue
its corporate existence to the extent necessary to “wind up and
liquidate its business and affairs.”

(Pls.’ Opp. Br. at 19.)

Moreover, Plaintiffs assert that the various limited liability

(See also Wells Fargo’s Br., Docket Entry 191, at 6-8; The T&N
Defs.’ Br. at 8-10.)
3

18

companies involved in this action were forced to dissolve because
of Defendants’ fraudulent acts.

(Pls.’ Opp. Br. to Wells Fargo,

Docket Entry 208, at 12-15.)
Federal Rule of Civil Procedure 17 governs litigants’
capacity to sue in Federal Court.
choice of law rule.

Section 17(b) sets forth a

Under Section 17(b)(2), a corporation’s

capacity is determined “by the law under which it was organized,”
while under Section 17(b)(3)--a catch all provision--the Court
must look to the “state where the court is located” to determine
all other parties’ capacity to bring suit.

FED. R. CIV. P. 17.

Because the LCC Plaintiffs are limited liability companies, not
corporations, the catch-all provision is controlling and the Court
must rely upon New York law to decide whether the LLC Plaintiffs
have capacity to sue.

See Merry Gentleman, LLC v. George & Leona

Prods., Inc., No. 13-CV-2690, 2014 WL 3810998, at *2 (N.D. Ill.
Aug. 1, 2014) (collecting cases); HWI Partners, LLC v. Choate,
Hall & Stewart LLP, No. CV 13-CV-0918, 2013 WL 6493118, at *3 (D.
Del. Dec. 11, 2013); First Am. Mort., Inc. v. First Home Builders
of Fla., No. 10-CV-0824, 2011 WL 4963924, at *12-13 (D. Colo. Oct.
14, 2011); Malibu Media, LLC v. Steiner, 307 F.R.D. 470, 473 (S.D.
Ohio 2015).

But see Formcrete, Co. v. NuRock Constr., LLC, No.

07-CV-0290, 2007 WL 2746812, at *2 (E.D. Tex. Sept. 19, 2007).

In

New York, “the persons winding up the limited liability company’s
affairs may, in the name of and for and on behalf of the limited
19

liability company, prosecute and defend suits, whether civil,
criminal or administrative.”

N.Y. LLC LAW § 703. Since this action

accrued before the LLC Plaintiffs were dissolved, it is feasible
that this lawsuit was brought by the LLC Plaintiffs in an effort
to wind up their affairs after they were fatally injured by
Defendants’ fraudulent acts. Paradise Creations, Inc. v. UV Sales,
Inc., 315 F.3d 1304, 1307-08 (Fed. Cir. 2003) (holding that the
plaintiff had the capacity to sue to wind up a corporation’s
affairs); cf. Houraney v. Burton & Assoc., P.C., No. 08-CV-2688,
2011 WL 710269, at *1 (E.D.N.Y. Feb. 22, 2011) (finding that an
individual prosecuting a malpractice action in the name of a
dissolved LLC did not have standing to sue).

The Court is

troubled, however, that Plaintiffs did not submit any evidence, in
the form of an affidavit or otherwise, in support of their argument
that Plaintiffs filed this action in connection with efforts to
wind up the LLC Plaintiffs.

Should evidence surface to the

contrary during discovery, the LLC’s standing in this case may be
re-examined on a motion for summary judgment.
Reis also argues that the LLC Plaintiffs are barred from
prosecuting this action under N.Y. LLC Law § 808(a), which requires
a “foreign limited liability company doing business in [New York]”
to obtain a certificate of authority before “maintain[ing] any
action, suit or special proceeding in any [New York] court.”

20

N.Y.

LLC Law § 808(a).4

However, that statute is inapplicable, assuming

the LLC Plaintiffs filed suit solely for the purpose for winding
up their businesses.
that

is

dissolved

By definition, a limited liability company
and

winding

up

its

operations

cannot

be

classified as “doing business” within the meaning of N.Y. LLC Law
§ 808.

See Moran Enterprises, Inc. v. Hurst, 66 A.D.3d 972, 975,

888 N.Y.S.2d 109, 112 (2d Dep’t 2009) (“Upon dissolution, the
corporation’s legal existence terminates . . . [and a] dissolved
corporation is prohibited from carrying on new business . . . and
does not enjoy the right to bring suit in the courts of this state,
except in the limited respects specifically permitted by statute”)
(citations omitted).
Finally, Wells Fargo and the T&N Defendants both argue
that Plaintiffs impermissibly employed “group pleading,” in the
TAC--lumping multiple Plaintiffs together for pleading purposes.
(T&N Defs.’ Br. at 9; Wells Fargo’s Br. at 10.)

Wells Fargo and

the T&N Defendants both claim that Plaintiffs’ group pleading
practice implicates Plaintiffs’ standing, and seeks to have the
Complaint wholly dismissed on that basis.

Although the TAC does

employ group pleading, Plaintiffs’ allegations reference specific
communications

and

representations

made

by

the

individual

Defendants, which can be investigated and probed in discovery.

4

(Reis’s Br. at 17.)
21

Although

the

pleading,

Court

which

does

not

diminishes

sanction
the

the

practice

specificity

of

of

group

Plaintiffs’

allegations, it would be improper to dismiss the entire case on
standing grounds when, as here, there are sufficient facts listed
in the TAC to put Defendants on notice of the wrongs they allegedly
committed.
Therefore, the Moving Defendants motions to dismiss and
for judgment on the pleadings are DENIED WITHOUT PREJUDICE to the
extent they seek to dismiss the LLC Plaintiffs’ claims on lack of
capacity and standing grounds.
IV.

The Doctrine of In Pari Delico Does not Bar Eagle’s Claims
The

Moving

Defendants

argue

that

Eagle

should

be

dismissed as a plaintiff in this case under the doctrine of in
pari delicto because he was engaged in an unrelated fraud scheme
around the same time he was defrauded by Defendants.
at 19.5)

(Reis’s Br.

Beginning in 2002, Eagle submitted a number of false

documents to a bank in order to obtain financing for his real
estate business.
35:11.)

(G. Eagle Plea Tr., Docket Entry 158-6, 27:3-

For his actions, Eagle was charged with bank fraud, wire

fraud, and mail fraud.

He subsequently pleaded guilty to those

charges on March 14, 2013.

5

(G. Eagle Plea Tr. at 1-2.)

Plaintiffs

(See also Wells Fargo’s Br. at 11; T&N Defs.’ Br. at 10.)
22

argue that because the parties’ wrongs were unrelated, the doctrine
of in pari delicto does not apply.

(Pls.’ Opp. Br. at 21-22.)

The doctrine of “[i]n pari delicto prevents a party from
suing others for a wrong in which the party itself participated.”
Parmalat Capital Fin. Ltd. v. Bank of Am. Corp., 412 F. App’x 325,
327 (2d Cir. 2011).

For the doctrine to apply, the plaintiff must

be just as culpable, or more culpable than the defendant in the
conduct forming the basis for the complaint.

UCAR Int’l, Inc. v.

Union Carbide Corp., 119 F. App’x 300, 301–02 (2d Cir. 2004).
Though the wrongs perpetrated by the parties must be similar, they
need not be identical.

Knox v. Countrywide Bank, 4 F. Supp. 3d

499, 510 (E.D.N.Y. 2014).

However, the in pari delico doctrine

“requires that the plaintiff be ‘an active, voluntary participant
in the unlawful activity that is the subject of the suit.’”
Brandaid Mktg. Corp. v. Biss, 462 F.3d 216, 218 (2d Cir. 2006)
(quoting Pinter v. Dahl, 486 U.S. 622, 636, 108 S. Ct. 2063, 2073,
100 L. Ed. 2d 658 (1988).

In other words, “[p]laintiffs who are

truly in pari delicto are those who have themselves violated the
law in cooperation with the defendant.”

Pinter, 486 U.S. at 636,

108 S. Ct. at 2073 (internal quotation marks and citation omitted).
In UCAR, for example, a company sued his former controlling
shareholders for looting the company of millions of dollars through
payments made as part of a corporate transaction.

UCAR Int’l,

Inc. v. Union Carbide Corp., No. 00-CV-1338, 2004 WL 137073, at
23

*2-3 (S.D.N.Y. Jan. 26, 2004) aff’d, 119 F. App’x 300 (2d Cir.
2004).

Before the transaction was consummated, however, the

company

engaged

in

a

criminal

inflated the company’s earnings.

price-fixing

conspiracy

that

In deciding that the doctrine of

in pari delicto barred the company’s claim against it shareholders,
the

court

explained

that

the

only

reason

the

payments

to

controlling shareholders were wrongful was because of the pricefixing scheme, which all the parties were aware of.

Id. at *10.

Although the wrong which the controlling shareholders were accused
of committing was different than the criminal conduct which the
company

engaged

in,

the

court

found

that

the

“sufficiently similar” for the doctrine to apply.

conduct

was

Id. at *11; see

also Knox, 4 F. Supp. 3d at 510 (finding a couple that knowingly
signed fraudulent loan documents were precluded from bringing a
fraud claim against the bank that gave them the loan).
Although Eagle and Defendants each committed similar
wrongs involving fraud here, Eagle was not a participant in
Defendants unlawful activity that is the subject of this action.
There is no indication that Eagle and Defendants cooperated in any
culpable conduct, or that Defendants were even aware of Eagle’s
fraudulent acts.

Although Eagle’s eagerness to keep his real

estate businesses solvent as a result of his bad acts may have
made him an easy target for Defendants, that does not make him
somehow complicit in Defendants conduct.
24

Since Eagle was not

engaged in Defendants’ Scheme, the in parti delicto doctrine does
not bar Eagle from participating as a Plaintiff in this action.
V.

Reis’s Motion to Dismiss
Indemnity and Contribution

Wells

Faro’s

Counterclaims

for

Reis also moves to dismiss Wells Fargo’s cross-claim
against him for indemnity and contribution, arguing that the claim
does not meet the liberal pleading requirements of Federal Rule of
Civil Procedure 8.

(Reis’s Cross-Claim Br. at 6.)

To assert a

claim under Federal Rule of Civil Procedure 8(a)(2), party must
commit to paper, “a short and plain statement of the claim showing
that the pleader is entitled to relief.”

FED. R. CIV. P. 8(a)(2).

The pleading standards may be “lessened somewhat for third-party
claims,

which

pleadings.”

may

be

read

in

conjunction

with

the

original

Arkwright Mut. Ins. Co. v. Bojoirve, Inc., No. 93-

CV-3068, 1996 WL 361535, at *2 (S.D.N.Y. June 27, 1996).

However,

third-parties seeking indemnification or contribution must still
set forth “enough facts to state a claim to relief that is
plausible on its face.”
1974.

Twombly, 550 U.S. at 570, 127 S. Ct. at

For example, the Court found in Capitol Records, Inc. v.

City Hall Records, Inc., No. 07-CV-6488, 2008 WL 2811481, at *5-6
(S.D.N.Y. July 18, 2008) that a party sufficiently stated a claim
in their third-party complaint when they alleged that they “entered
into or assumed oral and/or written contracts . . . requiring
Third-Party

Defendants

to

indemnify

25

[them

and]

to

hold

them

harmless.”

Id.

Conversely, in Gabriel Capital, L.P. v. Natwest

Fin., Inc., 137 F. Supp. 2d 251, 269-70 (S.D.N.Y. 2000) the court
found that a party failed to properly plead a third-party claim
when it asserted that, if it were found to be liable, it was
entitled to “indemnification and/or contribution”, without setting
forth any additional facts. See also Askanase v. Fatjo, 148 F.R.D.
570, 574 (S.D. Tex. 1993) (finding that a cross claim that merely
state[ed] in conclusory fashion that a party was “entitled to
indemnity and/or contribution” fell short of meeting the notice
requirements of Rule 8).
Applying these standards, Wells Fargo’s counterclaims
against Reis fall short of what Rule 8 requires.

Wells Fargo

asserts the following cross-claim against Reis:
The negligence and/or culpable conduct of
Defendant Michael D. Reis contributed in whole
or in part to Plaintiffs’ injuries . . . .
If Plaintiffs have sustained any injuries
and/or damages as alleged in the [C]omplaint
by reason of fault other than its own . . .
upon
the
theory
of
apportionment
of
responsibility and indemnification and/or
contribution, the Defendant Michael D. Reis
will be liable over to and required to
indemnify . . . Wells Fargo for all or part
of said judgment.
(Wells Fargo’s Answer, Docket Entry 156, at 115.)

Although Wells

Fargo’s cross-claim does reference the Complaint, it does not
contain a single independent fact indicating why Reis is obligated
to indemnify Wells Fargo in the event Wells Fargo is ultimately
26

found liable to Plaintiff.

Although a cross-claim provides as

much detail as the allegations within the Complaint, it must
provide more than boilerplate language to give adequate notice
under Rule 8.

Therefore, Reis’s motion to dismiss Wells Fargo’s

cross-claim is GRANTED.
A. Leave to Amend
Under Federal Rule of Civil Procedure 15(a), “leave to
amend shall be freely granted when justice so requires.” “Although
the

decision

whether

to

grant

leave

to

amend

is

within

the

discretion of the district court, refusal to grant leave must be
based on solid ground.’”

Oliver Sch., Inc. v. Foley, 930 F.2d

248, 253 (2d Cir. 1991) (quoting Ronzani v. Sanofi S.A., 899 F.2d
195, 198 (2d Cir. 1990).

Wells Fargo suggests that it has viable

cross-claims against Reis for either indemnity or contribution
because Reis was acting as Wells Fargo’s agent during the time he
was soliciting money from the Plaintiffs.
Br., Docket Entry 184, at 10-13.)

(Wells Fargo’s Opp.

In response, Reis argues that

Wells Fargo should not be allowed to amends its cross-claims
because its indemnification allegation should be brought as a
separate lawsuit in Oregon.
Entry 187, at 7.)

(Reis’s Cross-Claim Reply Br., Docket

Given that Wells Fargo’s cross-claim arises

from the very same facts that are the subject of Plaintiffs’
claims, judicial economy would be better served by allowing Wells
Fargo to amend its cross-claim, rather than splitting up this
27

dispute between forums.

See Morse/Diesel, Inc. v. Fid. & Deposit

Co. of Md., 715 F. Supp. 578, 583 (S.D.N.Y. 1989) (explaining that
the “Court will not needlessly bifurcate and complicate matters by
forcing plaintiff to go after a guarantor in a separate lawsuit”).
Therefore, Wells Fargo is GRANTED LEAVE TO AMEND its cross-claim
for indemnity and contribution asserted against Reis.
VI.

Defendants’ Argument Regarding Damages for Lost Profits is
not Ripe for Review
Both Wells Fargo and the T&N Defendants argue that

Plaintiffs should be precluded from recovering damages for lost
profits

in

this

action

under

representation theories of relief.
T&N Defendants’ Br. at 12-13.)

their

fraud

or

negligent

(Wells Fargo’s Br. at 12-14;

Plaintiffs do not dispute that

lost profits are not recoverable based upon either a fraud or
negligent representation theory.

But Plaintiffs nevertheless

argue that they sustained other consequential damages, including
payments made to vendors and “damages . . . sustained as a result
of passing up other business opportunities,” which they assert are
recoverable.

(Pls.’ Opp. Br. to Wells Fargo at 20.)

Given

Plaintiffs’ vague assertions and the unfortunately early stage of
this litigation, it would be inappropriate for the Court to rule
on the validity of Plaintiff’s damages theory at this juncture.

28

VII. Plaintiff’s Negligence Claim Against Wells Fargo
Duplicative of its Negligent Misrepresentation Claim

is

Plaintiffs’ have asserted both a common law negligence
claim and a negligent misrepresentation claim against Wells Fargo.
Wells Fargo argues that Plaintiffs’ common law negligence claim is
duplicative and should be dismissed.

(Wells Fargo’s Br. at 3-5.)

Duplicative claims shall be dismissed when they are based on
identical conduct and seek the same relief.

See Paladini v.

Capossela, Cohen, LLC, No. 11–CV–2252, 2012 WL 3834655, at *6
(S.D.N.Y. Aug. 15, 2012) (dismissing claims as duplicative where
claims including negligence and negligent misrepresentation were
based upon the same allegations and injuries), aff’d, 515 F. App’x
63 (2d Cir. 2013); Donald Dean & Sons, Inc., v. Xonitek Sys. Corp.,
656 F. Supp. 2d 314, 323 n.12 (N.D.N.Y. 2009) (“Although the Second
Cause

of

Action

is

captioned

as

a

negligence

and

negligent

misrepresentation claim, there are no allegations of negligence
beyond

those

asserting

that

[defendants]

negligently

misrepresented certain facts . . . .”) (internal quotation marks
omitted); see also King Cnty., Wash. v. IKB Deutsche Industriebank
AG, 863 F. Supp. 2d 288, 301 (S.D.N.Y. 2012), rev’d in part on
other

grounds,

negligence

claim

2012
and

WL

11896326

negligent

(rejecting

argument

misrepresentation

that

claims

duplicative because they were based on different conduct).

were

In its

August 2014 Order, the Court dismissed Plaintiffs’ common law

29

negligence claim against Reis as duplicative of its negligent
misrepresentation claim.
*14.

See Sands Harbor, 2014 WL 4374586, at

Wells Fargo argues that the negligence allegations made

against it are no different.

Plaintiffs assert, in opposition,

that their common law negligence claim against Wells Fargo is
broader in scope than its negligent misrepresentation allegation
because

it

encompasses

the

allegations

that

negligently hired and negligently supervised Reis.
Br. to Wells Fargo at 8.)
Wells

Fargo

was

Wells

Fargo

(Pls.’ Opp.

The TAC contains the allegation that

negligent

because

it

“fail[ed]

to

exercise

reasonable due diligence in advising Sands Harbor that EVMC’s
closing on the financing was both certain and imminent.”
418.)

(TAC ¶

Even if read liberally, Plaintiffs’ negligence claim does

encompass

a

negligent

against Wells Fargo.

hiring

or

negligent

(See TAC ¶¶ 408-22.)

supervision

claim

Moreover, Plaintiffs’

negligent misrepresentation claim against Wells Fargo is nearly
identical

to

its

common

law

negligence

claim.

Plaintiffs’

negligent misrepresentation allegation seeks to hold Wells Fargo
for “making representations to Sands Harbor to the effect that
closing on the financing was both certain an imminent.”
410.)

(TAC ¶

Since the two claims are nearly identical, Plaintiff’s

common law negligence claim against Wells Fargo is DISMISSED WITH
PREJUDICE as duplicative.

Plaintiffs were already allowed four

30

opportunities to amend their Complaint, and will not be given a
fifth opportunity.
CONCLUSION
For

the

Foregoing

Reasons,

GRANTED IN PART and DENIED IN PART.

Defendants’

motions

are

Specifically, Reis’s motion

to dismiss (Docket Entry 157) and the T&N Defendants’ motion for
judgment on the pleadings are both (Docket Entry 196) are DENIED.
Reis’s

motion

indemnification

to

dismiss

Wells

and

contribution

is

Fargo’s
GRANTED,

cross-claim

for

however,

Wells

Fargo’s motion to amend (Docket Entry 182) is also GRANTED.

Wells

FARGO may file and serve amended cross-claims within thirty (30)
days of the date of this Memorandum & Order.

Wells Fargo’s motion

for judgment on the pleadings (Docket Entry 189) is GRANTED IN
PART and DENIED IN PART.

Specifically, Wells Fargo’s motion is

GRANTED to the limited extent that Plaintiffs common law negligence
claims against Wells Fargo are DISMISSED WITH PREJUDICE, but
otherwise DENIED.

SO ORDERED.
/s/ JOANNA SEYBERT______
Joanna Seybert, U.S.D.J.
DATED:

January
13 , 2016
Central Islip, New York

31