Goldberg v. Gray, Jr. et al

Filing 52

MEMORANDUM-DECISION and ORDER. It is ORDERED that Plaintiff's 39 cross motion to amend is GRANTED and the Amended Complaint is deemed served and filed this date. Defendants Nixon Peabody, LLP and John Koeppel Esq.'s 25 motion to dismi ss for failure to state a cause of action and defendants Gregory P. Edwards and Bennington Investment Management, Inc.'s 30 motion to dismiss are DENIED without prejudice. Defendants are directed to file an Answer or a Motion to Dismiss the A mended Complaint on or before January 8, 2016. Receiver's 34 motion to intervene is GRANTED. Decision concerning the Receivers 34 motion to stay is RESERVED. Defendant Gregory W. Gray Jr.'s 33 letter is STRICKEN. Defendant Gray is directed to file an Answer or a Motion to Dismiss the Amended Complaint on or before January 8, 2016. Failure to file an Answer or a Motion to Dismiss may result in the entry of a default judgment. Signed by Judge David N. Hurd on 12/9/2015. (dpk)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
-------------------------------ANDREW GOLDBERG, individually and on behalf
all others similarly situated, as a class,
Plaintiffs,
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5:15-CV-0538
(DNH/TWD)

GREGORY W. GRAY, JR.; GREGORY P. EDWARDS;
ARCHIPEL CAPITAL, LLC; BIM MANAGEMENT, LP;
BENNINGTON INVESTMENT MANAGEMENT, INC.;
NIXON PEABODY, LLP; JOHN KOEPPEL ESQ.; and
against all in a representative and fiduciary capacity
for as acting GENERAL PARTNERS; and CONTROL
MEMBERS of BENNINGTON–EVERLOOP LP;
ARCHIPEL CAPITAL-AGRIVIDA LLC; ARCHIPEL
CAPITAL-BLOOM ENERGY LP; ARCHIPEL
CAPITAL–LATE STAGE FUND LP; ARCHIPEL
CAPITAL–LINEAGEN LP; ARCHIPEL CAPITAL–SOCIAL
MEDIA FUND LP, (1, 2, 3 & 4) and against each said
funds Individually as Limited Partnership Enterprises
and as Attorneys and Publishers of all Private Placement
Memorandums in connection with each/any/or all of the
above entities; and Jane Does and Mary Roes (#1-10),
Defendants.
-------------------------------APPEARANCES:

OF COUNSEL:

CHERUNDOLO LAW FIRM, PLLC
Attorney for the Plaintiffs
100 Madison Street
Syracuse, NY 13202

JOHN C. CHERUNDOLO, ESQ.

WOLFORD LAW FIRM, LLP
Attorney for Defendant Nixon Peabody, LLP
and John Koeppel, Esq.
16 East Main Street
Rochester, NY 14614

MICHAEL R. WOLFORD, ESQ.

BALLARD, SPAHR LAW FIRM
Attorney for Defendant Gregory P. Edwards
and Bennington Investment Management, Inc.
919 Third Avenue, 37th Floor
New York, NY 10022

MICHAEL J. GRUDBERG, ESQ.

MCCONVILLE, CONSIDINE LAW FIRM
Attorney for Lucien A. Morin, II, Receiver
25 E. Main Street, Suite 500
Rochester, NY 14614

WILLIAM E. BRUECKNER, III, ESQ.

Gregory W. Gray, Jr.
Pro Se Defendant
760 Forest Avenue
Buffalo, New York 14092
DAVID N. HURD
United States District Judge
MEMORANDUM-DECISION and ORDER
I. INTRODUCTION
Plaintiff Andrew Golberg (“Goldberg”) filed this class action complaint alleging various
violations relating to securities fraud. At the heart of his complaint, plaintiff alleges that defendant
Gregory W. Gray Jr. and the other defendants engaged in ongoing fraudulent conduct designed
to defraud investors and that defendant Gray operated a classic Ponzi-like scheme.
II. FACTUAL BACKGROUND
Plaintiff contends that from 2011 to 2015, defendant Gray and defendant Gregory
Edwards raised approximately $19.6 million in investments from at least 140 individuals and
investors through 11 investment limited liability companies and limited partnerships listed in the
complaint (the “Archipel Entities”)1. Plaintiff’s complaint alleges that the individual defendants,
including investment professionals and their attorneys, made material misrepresentations when
marketing investments to the plaintiffs and during the course of the investment relationship,
including misleading investors concerning business partnerships, product development, the

1

Although 12 investment vehicles are listed in the Complaint, it appears that only Archipel Capital LLC, BIM
Management, Inc. and Bennington Investment Management, Inc. have been served.

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number of product users and major co-investors, specifically with regards to an investment in
Everloop, Inc., a business engaged in social media platforms for youth. Plaintiff also alleges that
the defendants failed to disclose that defendant Gray had previously been the subject of
discipline for misusing customer monies and surrendered his license for trading in February
2008. Plaintiff further alleges that defendant Gray utilized funds for certain investment vehicles
to provide anticipated returns to other investment vehicles and falsified documents to conceal
the commingling of funds.
On February 27, 2015, the Security and Exchange Commission commenced an action
against defendant Gray and the Archipel Entities in the Southern District of New York, enjoining
further activity of the Archipel Entities and seeking damages from defendant Gray (the “SEC
Action”). Neither Gregory Edwards, Bennington Investment Management, Inc., Nixon Peabody,
LLP nor John Koeppel are named as defendants in the SEC Action. Pursuant to a court order
in the SEC Action, Lucien Morin (the “Receiver”) was appointed the receiver to preserve the
status quo with respect to the assets contained in the Archipel Entities.
Plaintiff’s complaint alleges: (i) violations of the Racketeer Influenced and Corrupt
Organizations Act (18 U.S.C. § 1962) (Claims 1 & 2), (ii) violation of § 10(b) of the Exchange Act
and Rule 10-(b)(5) (Claim 3), (iii) violation of § 12 of the Securities Act (Claim 4) and (vii)
numerous state law claims including fraud, negligent misrepresentation, breach of fiduciary duty,
violation of New York General Business Law §§ 349 and 350, conversion, unjust enrichment, and
violation of New York Debtor & Creditor Law §§ 273-276 concerning fraudulent conveyances
(Claims 5-15).
Presently under consideration are: (i) plaintiff’s motion to amend his complaint; (ii) the
Receiver’s motion to intervene and stay action, (iii) defendants Nixon Peabody, LLP and John
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Koeppel’s (collectively, the “Nixon Defendants”) motion to dismiss for failure to state a claim and
(iv) defendant Gregory Edwards and Bennington Investment Management, Inc.’s (collectively,
the “Edwards Defendants”) motion to dismiss for failure to state a claim.
III. DISCUSSION
(a) Cross Motion to Amend (ECF No. 39)2
Plaintiff commenced this action against defendants by timely filing a Summons and
Complaint on April 30, 2015. On September 1, 2015, the Nixon Defendants filed a motion to
dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). Also on September 1, 2015, the
Edwards Defendants filed a separate motion to dismiss. On September 16, 2015, plaintiff
requested a sixty (60) adjournment and extension of time to submit papers in opposition to the
motions to dismiss filed by the Nixon and Edwards Defendants. Such request was granted.
After the Receiver filed the Motion to Intervene and Stay, by order of the Court, plaintiff’s
response was due on November 17, 2015. On November 17, 2015, plaintiff filed this motion to
amend/correct and attached the proffered Amended Summons and Complaint.
Plaintiff has moved pursuant to Federal Rule of Civil Procedure 15(a)(1)(B), or
alternatively Rule 15(a)(2), to amend its complaint. Rule 15(a)(1)(B) permits a plaintiff to file an
amended complaint “as a matter of course . . . 21 days after service of a motion under Rule
12(b).” However, most courts, have found that an extension of time to respond to a Rule 12(b)
motion does not extend the 21 day time period within which a plaintiff may file an amendment
as a matter of course. See Ellis v. Jean, 2011 WL 6368555, at *7 (S.D.N.Y. Dec. 16, 2011);
Caro v. Weintraub, 2010 WL 4514273, at *8 (D. Conn. Nov. 2, 2010). As a result, plaintiff is not
2

Plaintiff appears to have filed an identical cross motion in response to both pending Motions to
Dismiss. See ECF Nos. 39 & 40. Consequently, only ECF No. 39 will be referred to and ECF No. 40 will be
considered duplicative.
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entitled to amend his complaint as a matter of course.
Leave to amend a complaint should be freely given “when justice so requires.” FED. R.
CIV. P. 15(a)(2). It is “within the sound discretion of the district court to grant or deny leave to
amend.” McCarthy v. Dun & Bradstreet, 482 F.3d 184, 200 (2d Cir. 2007). “Leave to amend,
though liberally granted, may properly be denied for: ‘undue delay, bad faith or dilatory motive
on the part of the movant, repeated failure to cure deficiencies by amendments previously
allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility
of amendment, etc.’” Ruotolo v. City of New York, 514 F.3d 184, 191 (2d Cir. 2008). “The rule
in this Circuit has been to allow a party to amend its pleadings in the absence of a showing by
the nonmovant of prejudice or bad faith.” Block v. First Blood Assocs., 988 F.2d 344, 350 (2d
Cir. 1993). “Amendment may be prejudicial when, among other things, it would require the
opponent to expend significant additional resources to conduct discovery and prepare for trial
or significantly delay the resolution of the dispute.” AEP Energy Services Gas Holding Co. v.
Bank of America, N.A., 626 F.3d 699, 725 (2d Cir. 2010).
Here, plaintiff argues that permitting the amendment shall not result in any prejudice to
the defendants and that plaintiff has not acted with undue delay, bad faith or dilatory motive.
Both the Nixon Defendants and the Edwards Defendants opposed plaintiff’s motion arguing that
the motion to amend is futile as the claims contained in the proposed amended complaint still
fail to state proper claims against them.
The Court finds that allowing for leave to amend would not be unduly prejudicial to the
defendants. The initial complaint was filed in April 2015 and the motion to amend was made
within a reasonable time frame of the filing of the motions to dismiss. The proposed amended
complaint is based on the same series of allegations and facts. Further, plaintiff’s proposed
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amendments do not appear futile. As a result, plaintiff’s motion to amend pursuant to Rule
15(a)(2) will be granted. Plaintiff is advised that it will not be permitted to file additional amended
complaints, to cure defects or otherwise.
(b) Motions to Dismiss by the Nixon Defendants and Edwards Defendants.
As plaintiff’s motion to amend will be granted, the motions to dismiss by the Nixon
Defendants and the Edwards Defendants shall be denied without prejudice. Defendants shall
be permitted to renew their motions to dismiss addressing specific allegations contained in the
amended complaint.
(c) Receiver’s Motion to Intervene (ECF No. 34). The Receiver has brought a motion to
(i) intervene as a party defendant in the present action and (ii) stay the present action as against
the Archipel Entities. The Receiver argues that the SEC Action involves largely overlapping
issues of fact and law and overlapping relief that would benefit the same investors. Further, the
Receiver argues that the burden of defending both actions will ultimately diminish the likelihood
of recovery for the plaintiff class.
Pursuant to Federal Rule of Civil Procedure 24(a)(2), “the court must permit anyone to
intervene who . . . claims an interest relating to the property or transaction that is the subject of
the action . . .”. As the Receiver has been appointed to preserve the status quo and to prevent
the dissipation of the property and assets of the Archipel Entities, the motion to intervene shall
be granted.
The Receiver further contends that the proceedings against only the Archipel Entities
should be stayed. A court’s power to stay proceedings is incidental to the power inherent in
every court to control the disposition of the causes on its docket with economy of time and effort
for itself, for counsel and for litigants. See Kashi v. Gratsos, 790 F.2d 1050, 1057 (2d Cir. 1986).
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In Nuccio v. Duce, 2015 WL 1189617 at *5 (N.D.N.Y. March 16, 2015), the Court identified
five factors that should be examined in deciding whether to stay proceedings: (1) the private
interests of the plaintiffs in proceeding expeditiously with the civil litigation as balanced against
the prejudice to plaintiffs if delayed; (2) the private interests of and burden on the defendants;
(3) the interests of the courts; (4) the interests of persons not parties to the civil litigation, and (5)
the public interest.
The Receiver contends that hardship will be imposed upon the defendants and the
Archipel Entities if they are required to defend two separate but overlapping actions and result
in an unnecessary expense and diminution of assets, which may ultimately go to investors.
Plaintiffs do not generally object to a stay but wish to obtain discovery from the Archipel Entities
in order to proceed against the remaining defendants. As plaintiff’s motion to amend will be
granted, it is premature to determine whether a stay with regards to the Archipel Entities is
appropriate. As a result, a ruling on the Receiver’s motion to stay is reserved for further
consideration.
(d) Defendant Gray’s Letter.
On September 1, 2015, Magistrate Therese Wiley Dancks ordered that a response to the
complaint for defendant Gregory W. Gray, Jr. was due on or before October 15, 2015. See ECF
No. 29. On October 15, 2015, defendant Gray submitted a letter indicating that he would be
representing himself and wished to join the motions to dismiss filed by the Nixon Defendants and
the Edwards Defendants. However, defendant Gray’s letter is insufficient to serve as a Notice
of Joinder to the motions to dismiss of the Nixon Defendants and the Edwards Defendants.
Regardless, defendant Gray will be permitted to enter appropriate responsive papers within thirty
(30) days of service of the Amended Complaint.
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IV. CONCLUSION
For the foregoing reasons, it is ORDERED that:
(1) Plaintiff’s cross motion to amend (ECF No. 39) is GRANTED and the Amended
Complaint is deemed served and filed this date;
(2) Defendants Nixon Peabody, LLP and John Koeppel Esq.’s motion to dismiss for
failure to state a cause of action (ECF No. 25) and defendants Gregory P. Edwards and
Bennington Investment Management, Inc.’s motion to dismiss (ECF No. 30) are DENIED without
prejudice. Defendants are directed to file an Answer or a Motion to Dismiss the Amended
Complaint on or before January 8, 2016;
(3) Receiver’s motion to intervene (ECF No. 34) is GRANTED;
(4) Decision concerning the Receiver’s motion to stay (ECF No. 34) is RESERVED;
(5) Defendant Gregory W. Gray Jr.’s letter (ECF No. 33) is STRIKEN. Defendant Gray
is directed to file an Answer or a Motion to Dismiss the Amended Complaint on or before January
8, 2016; and
(6) Failure to file an Answer or a Motion to Dismiss may result in the entry of a default
judgment.
IT IS SO ORDERED.

Dated: December 9, 2015
Utica, New York

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