Kriss et al v. BayRock Group LLC et al
ORDER AND OPINION re: 330 JOINT MOTION to Dismiss the Third Amended Complaint. filed by Bayrock Ocean Club LLC, Tevfik Arif, Elliot Pisem, Felix Satter, Salomon & Co., P.C., Roberts & Holland LLP, BayRock Group LLC, BayRock Spring Street LLC, Jerry Weinreich, Salvatore Lauria, BayRock Camelback LLC, Alex Salomon, BayRock Merrimac LLC, Julius Schwarz, BayRock Whitestone LLC, Mel Dogan.All other arguments in the parties' submissions related to this motion have been considered and determined to lack merit. For the foregoing reasons, Defendants' motion to dismiss is GRANTED with respect to the following herein. The motion is DENIED as to all other claims. For clarity the surviving claims and De fendants are as follows: Plaintiffs' substantive RICO claims as to Defendants Tevfik Arif, Felix Satter, Julius Schwarz, Bayrock Ocean Club LLC, Bayrock Merrimac LLC, Bayrock Camelback LLC, Bayrock Whitestone LLC, Bayrock Spring Street, LLC; Plaintiffs' RICO conspiracy claims as to Defendants Tevfik Arif, Felix Satter, Julius Schwarz, Alex Salomon, Jerry Weinreich, Salomon & Co.; Plaintiffs' fraudulent inducement claims, which are asserted against Defendants Bayrock Group LL C, Tevfik Arif, Felix Satter, Bayrock Ocean Club LLC, Bayrock Merrimac LLC, Bayrock Camelback LLC, Bayrock Whitestone LLC, Bayrock Spring Street, LLC; Plaintiffs' breach of contract claims, which are asserted against Defendants Bayrock Group LL C, Tevfik Arif, Felix Satter, Bayrock Ocean Club LLC, Bayrock Merrimac LLC, Bayrock Camelback LLC, Bayrock Whitestone LLC, Bayrock Spring Street, LLC; Plaintiffs' breach of fiduciary duty and aiding and abetting breach of fiduciary duty claims, which are asserted against Defendants Tevfik Arif, Felix Satter, Julius Schwarz, Bayrock Group LLC, Alex Salomon, Jerry Weinreich, Salomon & Co., Mel Dogan, Elliot Pisem, Roberts & Holland LLP; and Plaintiffs' alter ego/corporate veil piercing claims, which are asserted against Defendants Tevfik Arif, Felix Satter, Julius Schwarz. The Clerk of Court is directed to close the motion at Dkt. No. 330. (Signed by Judge Lorna G. Schofield on 12/2/2016) (kgo)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
JODY KRISS, et al.,
BAYROCK GROUP LLC, et al.,
DATE FILED: Dec 2, 2016
10 Civ. 3959 (LGS) (DCF)
ORDER AND OPINION
LORNA G. SCHOFIELD, District Judge:
Plaintiffs Jody Kriss and Michael Chu’di Ejekam bring this action against Defendants
Tevfik Arif, Felix Satter, Salvatore Lauria, Julius Schwarz, Alex Salomon, Jerry Weinreich, Mel
Dogan, Elliot Pisem, Bayrock Group LLC (“Bayrock Group”), Bayrock Ocean Club LLC
(“Ocean Club”), Bayrock Merrimac LLC (“Merrimac”), Bayrock Camelback LLC
(“Camelback”), Bayrock Whitestone LLC (“Whitestone”), Bayrock Spring Street LLC (“Spring
Street”), Salomon & Co., P.C., Roberts & Holland LLP and John Does 1–100, asserting
violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961–1968
(“RICO”), and various state laws. Defendants move to dismiss Plaintiffs’ claims against them.
For the reasons below, the motion is granted in part and denied in part.
For purposes of Defendants’ motion, the following facts are drawn from the Third
Amended Complaint (the “TAC”) and construed in the light most favorable to Plaintiffs. See
Littlejohn v. City of New York, 795 F.3d 297, 306 (2d Cir. 2015).
1. Formation of Bayrock Group and the Arif/Satter Agreement
Defendant Bayrock Group is a real estate development and investment firm founded in
2001 by Defendant Tevfik Arif. Arif had built a real estate development business in Kazakhstan
and Turkey and intended to expand that business into the United States through Bayrock Group.
In late 2002 or early 2003, Arif partnered with Defendant Felix Satter, formerly known as
Felix Sater, to run Bayrock Group. Satter had worked in finance but had little experience in real
estate. He also had been convicted of two crimes. In 1991, he was convicted of assault,
sentenced to prison and barred from selling securities. In 1998, he was charged with and pleaded
guilty to one count of racketeering based on alleged stock manipulation and money laundering.
The criminal complaint alleged that Satter had engaged in a “pump and dump” scheme using a
stock brokerage he operated with a co-defendant and numerous offshore shell corporations and
Under the agreement Arif and Satter allegedly made (the “Arif/Satter Agreement”), Arif
would contribute capital to Bayrock Group and its investment activities, and Satter would help
manage Bayrock Group’s affairs in exchange for 50% of the profits earned through Bayrock
Group’s investments. The Arif/Satter Agreement also called for Satter to share some of the
profits guaranteed to him with the real estate and finance professionals he was supposed to
recruit for Bayrock Group.
The Arif/Satter Agreement set the stage for the present dispute in two ways. First, the
TAC alleges that Arif and Satter agreed to operate Bayrock Group in a way that maximized their
profits, even at the expense of other investors, and to conceal both Satter’s criminal history and
his decision-making authority and ownership interest in Bayrock Group. Second, the TAC
alleges that the Arif/Satter Agreement initiated an “enterprise” within the meaning of RICO, 18
U.S.C. § 1961(c), that operated in the form of Bayrock Group (the “Bayrock Group Enterprise”
2. Plaintiffs Join Bayrock Group
Plaintiffs Jody Kriss and Chu’di Ejekam began working for Bayrock Group in 2003.
Kriss had worked in real estate finance for several years, including as an analyst at APC Realty
Advisors, where he met Satter. In 2002, Satter proposed that Kriss provide his professional
services to Bayrock Group in exchange for 10% of the profits from Bayrock Group’s
investments. Kriss accepted the offer and served as Bayrock Group’s director of finance from
2003 to 2007.
Ejekam agreed sometime in 2003 to provide consulting services to Bayrock Group in
exchange for fixed-fee payments plus profit participation in the Bayrock Group investments on
which he worked. Ejekam provided services to Bayrock Group until 2007 and was primarily
involved with identifying co-investors to fund Bayrock Group investments.
3. Bayrock Group Expands
The TAC alleges that the Bayrock Group Enterprise grew in size from 2003, when it
consisted of Arif and Satter, to 2007, when it involved all Defendants. Defendants Ocean Club,
Merrimac, Camelback, Whitestone and Spring Street (collectively, the “Bayrock Entities”) were
formed, and became associated with the Enterprise, between 2003 and 2006. The Bayrock
Entities were formed by Arif and Satter, acting through Bayrock Group, each in connection with
a specific real estate development. The TAC alleges that Arif and Satter managed and operated
the Bayrock Entities as a means to enrich themselves personally at the expense of third parties.
Defendants Salomon & Co., P.C. (“Salomon & Co.”), Alex Salomon (“Salomon”) and
Jerry Weinreich (collectively, the “Salomon Defendants”) served as accountants for Bayrock
Group from 2003 to 2008. The TAC alleges that the Salomon Defendants also became
employed by or associated with the Enterprise no later than 2003 and performed their accounting
duties in a manner designed to create the false impression that Bayrock Group and its
investments were operating in a routine and above-board manner.
In 2005, Defendant Julius Schwarz started working as Bayrock Group’s general counsel
and allegedly became employed by or associated with the Enterprise. As general counsel,
Schwarz oversaw salary payments, membership distributions and the accounting work performed
by the Salomon Defendants. He also oversaw, and in some cases prepared and executed,
investment and loan agreements involving Bayrock Group or related entities.
Defendant Salvatore Lauria allegedly became employed by or associated with the
Enterprise in 2004, when Satter began to use Bayrock Group as a means to enrich Lauria, his
Defendant Mel Dogan served as outside legal counsel to Bayrock Group and allegedly
became employed by or associated with the Enterprise in 2005. Dogan participated in the
negotiation and drafting of Plaintiffs’ compensation agreements and worked on a 2007
transaction described below that is at the core of Plaintiffs’ claims.
Defendants Roberts & Holland LLP (“Roberts & Holland”) and Elliot Pisem
(collectively, the “R&H Defendants”) allegedly became employed by or associated with the
Enterprise in 2007. The R&H Defendants served along with Dogan as outside legal counsel on
the 2007 transaction.
4. Frauds Against Outsiders
The TAC identifies three categories of information that Defendants fraudulently
concealed from various outside investors and lenders who dealt with Bayrock Group. The first
category of information, which the TAC calls the “Material Information,” includes Satter’s 1998
conviction, his “familiarity with converting corporate assets into personal income without
triggering detection” and his management and control of Bayrock Group. The second category,
called “Bad Faith Practices,” pertains to Arif and Satter’s agreement to “simply ignore . . .
contract provisions and promises -- along with federal and state law, and IRS regulations -whenever doing so would increase their take from the Enterprise.” The third category, the
“Illegally-Structured Satter Payments,” refers to five payments Bayrock Group made to Satter
between 2003 and 2007 that totaled several million dollars and that Bayrock Group did not treat
as wages or distributions for tax purposes at the time they were made. The TAC alleges that
these payments were designed to avoid tax liability and avoid disclosing -- in financial, corporate
and government records that investors or lenders might uncover -- Satter’s role in Bayrock
a. Investor Frauds
The TAC details Defendants’ alleged fraud against three investors in Bayrock Group
developments: Elizabeth Thieriot, Camelback Plaza Development LLC (“Camelback Plaza”)
and the Trump Organization.
i. Elizabeth Thieriot
In the fall of 2003, Elizabeth Thieriot invested $1 million in Defendant Ocean Club.
Ocean Club, Arif and Satter allegedly concealed the Material Information, Bad Faith Practices
and Illegally-Structured Satter Payments from Thieriot during the negotiations about her
investment. The TAC alleges that Thieriot never would have made the $1 million investment in
Ocean Club if she had known these concealed facts.
In connection with her investment, Thieriot wired approximately $1 million from a
California bank account to an Ocean Club bank account in either Florida or New York. In
September 2004, Ocean Club sent Thieriot an IRS Form 1065 for calendar year 2003 stating that
Thieriot was a 4% owner of Ocean Club and had contributed $1 million in capital during 2003.
Ocean Club later sent Thieriot an IRS Form 1065 for calendar year 2005, which was prepared
and approved by Schwarz and the Salomon Defendants, stating that Ocean Club had received
$1.5 million in “withdrawals and distributions” in 2005. Thieriot had not been informed of the
$1.5 million payment to Ocean Club.
In April 2006, Thieriot commenced an action in New York state court for an accounting
against Ocean Club. Thieriot alleged that the $1.5 million payment represented the amount paid
to Ocean Club to reduce its ownership interest in the underlying real estate investment from 50%
to 10%. Thieriot also alleged that she had not received any proceeds from the $1.5 million
The TAC alleges two RICO predicate acts based on the above. First, the TAC alleges
that Arif, Satter and Ocean Club, together with Schwarz and the Salomon Defendants, who
prepared documents in connection with Thieriot’s investment, perpetrated a fraud on Thieriot
involving communications transmitted through the U.S. interstate and international mail and
wires. Second, the TAC alleges that the transfer of some or all of the $1.5 million transferred by
Ocean Club to Bayrock Group, Arif and/or Satter constituted the transfer in interstate commerce
of money stolen, converted or taken by fraud, because a portion of the $1.5 million rightfully
belonged to Thieriot.
ii. Camelback Plaza
In 2003, an entity called Camelback Plaza began negotiations with Arif, Satter and
Bayrock Group to develop a property that Camelback Plaza owned. The parties agreed that
Bayrock Group would oversee the development and contribute at least $4.5 million in equity to
the project. As part of the deal, Camelback Plaza conveyed ownership of the parcel to
Camelback Development Partners LLC (“CDP”), an investment vehicle formed by the parties
and in which Bayrock Group, through its Camelback entity, had a controlling interest. The TAC
alleges that Arif and Satter concealed the Material Information, Bad Faith Practices and IllegallyStructured Satter Payments during the negotiations and that, if Camelback Plaza had known
these concealed facts, it would not have agreed to the deal or conveyed the parcel to CDP.
In 2006, CDP’s Operating Agreement provided that CDP was not to incur any debt in
addition to a $12.2 million loan from Capmark Finance (“Capmark”). Nonetheless, before CDP
had fully repaid the $12.2 million loan, it borrowed an additional $5.1 million from Capmark.
In January 2007, Camelback Plaza filed an action in Arizona state court against, among
others, Bayrock Group, Camelback, Arif, Satter, Schwarz and Plaintiff Kriss. Camelback Plaza
alleged that the defendants in that action had failed to disclose the criminal histories of Satter and
Lauria, and had breached their promises to retain Ernst & Young as accountants and to maintain
financial information prepared pursuant to generally accepted accounting principles. Camelback
Plaza also alleged that the defendants in its action had refused to provide financial information
about CDP to Camelback, violated CDP’s Operating Agreement and misappropriated CDP
funds. Additionally, Camelback Plaza alleged that, on or about February 25, 2006, Satter had
called one of Camelback Plaza’s managing members and threatened to have him tortured and
killed if he disclosed any of the suspected improprieties and past criminal conduct involving
Defendants and CDP.
The TAC alleges three RICO predicate acts based on the above. First, the TAC alleges
that Arif, Satter and Camelback, together with Schwarz (who negotiated the terms of the
additional $5.1 million loan from Capmark) and the Salomon Defendants (who prepared
documents in connection with Bayrock Group’s investment in CDP and the additional $5.1
million loan) perpetrated a fraud on Camelback Plaza involving communications transmitted
through the U.S. interstate and international mail and wires. Second, the TAC alleges that Arif,
Satter, Schwarz and Camelback transferred some portion, in excess of $5000, of the additional
$5.1 million loan, knowing that the transferred portion was stolen, converted or taken by fraud.
Third, the TAC alleges that the torture and death threat was an act of extortion.
iii. The Trump Organization
In 2003, Arif and Satter were introduced to Donald Trump, the president of the Trump
Organization, by a leasing agent for Trump Tower, where Bayrock Group had its offices.
Bayrock Group arranged for the Trump Organization to become involved in the Camelback,
Ocean Club and Merrimac developments and to have these developments marketed under the
Trump brand. The TAC alleges that Arif and Satter concealed the Material Information, Bad
Faith Practices and Illegally-Structured Satter Payments during the negotiations with the Trump
Organization. Furthermore, the TAC alleges that Donald Trump testified in a 2007 deposition in
an unrelated case that Arif had assured him that Satter was not a partner in Bayrock Group.
According to the TAC, the Trump Organization never would have agreed to partner with
Bayrock Group on the Camelback, Ocean Club and Merrimac developments if it had known the
In 2005, Bayrock Group partnered with the Trump Organization and the Sapir
Organization on another development, the Trump SoHo condo-hotel in New York City. As it
alleged about the 2003 negotiations, the TAC alleges that Arif, Satter, Bayrock Group and
Spring Street, the holding company for Bayrock Group’s ownership interest in Trump SoHo,
concealed the Material Information, Bad Faith Practices and Illegally-Structured Satter Payments
during the Trump SoHo negotiations. If the Trump Organization and the Sapir Organization had
known these concealed facts the TAC alleges, they would not have allowed Bayrock Group or
Spring Street to invest in Trump SoHo.
In December 2007, the New York Times published an article about Satter’s racketeering
conviction and his involvement in Bayrock Group. The TAC alleges that this report was
embarrassing and harmful to the Trump Organization and the Sapir Organization. The TAC also
alleges that the Sapir Organization and a lender to Trump SoHo developers demanded that
Spring Street’s finances be audited following the New York Times report.
The TAC alleges two RICO predicate acts based on the above. First, the TAC alleges
that Arif, Satter and Spring Street, together with Schwarz and the Salomon Defendants, who
prepared documents used in negotiating the Trump SoHo deal, perpetrated a fraud on the Trump
Organization and the Sapir Organization involving communications transmitted through the U.S.
interstate and international mail and wires. Second, the TAC alleges that Arif, Satter, Schwarz
and Spring Street transferred money received from the Sapir Organization to Fendi Casa as
payment for furnishings, material and design services for Trump SoHo, knowing that such funds
had been taken by fraud.
b. Lender Frauds
Bayrock Group required debt financing for its developments. Among the debt financing
Bayrock Group obtained was $275 million from iStar Financial in connection with the Spring
Street development, $17.3 million from Capmark in connection with the Camelback
development and $27.65 million from Capmark in connection with the Whitestone development.
The TAC alleges that Schwarz and the Salomon Defendants prepared the applications for these
financings, concealing the Material Information, Bad Faith Practices and Illegally-Structured
Satter Payments, and that the lenders would have denied Bayrock Group the financing if they
had known the concealed facts.
The TAC alleges a RICO predicate act based on each of the debt financings identified
above. The TAC alleges that Arif, Satter, Schwarz, the Salomon Defendants and several of the
Bayrock Entities perpetrated a fraud on the identified lenders involving communications
transmitted through the U.S. interstate and international mail and wires.
5. Frauds Against Bayrock Group Financial Professionals
In addition to defrauding outsider investors and lenders, Defendants allegedly defrauded
three financial professionals who worked for Bayrock Group -- Plaintiffs Kriss and Ejekam, and
non-party Beau Woodring (collectively, the “Financial Professionals”).
a. Compensation Agreements
According to the TAC, the Financial Professionals each had at least one compensation
agreement with Bayrock Group. Arif and Satter knew that Bayrock Group would need the
assistance of highly-skilled finance professionals to generate profits from its investments. Such
professionals can command annual salaries in the high six-figures or low seven-figures from
employers such as investment banks. The TAC alleges that, in order to maximize their personal
gain from Bayrock Group, Arif and Satter paid the Financial Professionals relatively low annual
salaries supplemented with the promise of significant future profits. However, the TAC alleges
that Arif and Satter never intended to honor such promises. The TAC also alleges that Arif,
Satter and the Bayrock Entities concealed the Material Information, Bad Faith Practices and
Illegally-Structured Satter Payments during the negotiation of the Financial Professionals’
The TAC alleges that Kriss entered into three compensation agreements with Bayrock
Group. Under the initial agreement, entered into in spring 2003, Kriss would receive 10% of the
profits from Bayrock Group’s investments, thereby reducing Satter’s share to 40%. This initial
agreement was memorialized in a letter written by Satter on behalf of himself and his wife. The
[W]e have granted you interests in entities formed or to be formed by either or
both of us, which in turn hold interests in Bayrock projects. In the future, you
may receive membership interests directly from Bayrock Group or one of its
Kriss entered into a second compensation agreement on June 29, 2004 (the “2004 Kriss
Agreement”). The 2004 Kriss Agreement provides that Bayrock Group would employ Kriss on
a full-time basis for a three-year term in his existing role as director of finance. In return, Kriss
would receive $10,000 per month in wages and “additional compensation as will be set forth in
the operating agreements of” Ocean Club, Merrimac and Camelback. The TAC alleges that the
operating agreement of each of those entities granted Kriss a 10% membership interest.
Additionally, once Arif and Bayrock Group were fully reimbursed for any capital contributions,
Kriss would “receive distributions in the aforesaid limited liability companies in the proportions
set forth in said operating agreements.”
In 2005, Kriss entered into a third compensation agreement with Bayrock Group (the
“2005 Kriss Agreement”). The 2005 Kriss Agreement provides that Kriss would receive “a nondilutable 10% non-voting membership interest in the Company [Bayrock Group] and each of the
Company Entities,” defined as “the affiliates, subsidiaries and related entities of the Company
and/or Tevfik Arif doing business under the ‘Bayrock’ name.” The 2005 Kriss Agreement also
set forth a vesting schedule for Kriss’s membership interests and purported to amend and modify
the operating agreements for Bayrock Group and the Company Entities “to incorporate the
provisions” granting Kriss membership interests.
The TAC alleges that Ejekam entered into several compensation agreements with
Bayrock Group. In 2003, Ejekam agreed to provide consulting services to Bayrock Group, Arif
and Satter in exchange for fixed fee payments plus profit participation in the Bayrock Group
investments on which he worked. In 2005, Ejekam entered into two compensation agreements
with Bayrock Group -- one granting him a 2% membership interest in Whitestone and the other
granting him a 2% membership interest in Spring Street (collectively, the “2005 Ejekam
Agreements”). Ejekam and Bayrock Group memorialized the 2005 Ejekam Agreements in
writing in 2006 (collectively, the “2006 Ejekam Agreements”). The 2006 Ejekam Agreements
granted Ejekam “a 2% membership profit interest” in Whitestone and Spring Street “following
the return to Tevfik Arif and/or Bayrock Group of one hundred percent (100%) of the cumulative
capital advanced in the Project plus a ten percent (10%) return thereon.” The 2006 Ejekam
Agreements also purported to amend and modify the relevant operating agreements to
incorporate these provisions.
The TAC alleges that Woodring entered into two compensation agreements and one
separation agreement with Bayrock Group. In 2003, Woodring agreed to accept future profit
participation in some of Bayrock Group’s investments in lieu of a guaranteed salary for the
professional service he provided to Bayrock Group, Arif and Satter. In 2004, Woodring entered
into a compensation agreement that granted him 5% membership interests in Merrimac and
Ocean Club and a 10% membership interest in Camelback. In 2005, Woodring informed
Bayrock Group that he wanted to separate from Bayrock Group and entered into a separation
agreement, which granted Woodring a fully-vested, non-dilutable 10% non-voting membership
interest in Camelback and divested Woodring’s membership interests in Merrimac and Ocean
Club. The separation agreement also purported to amend and modify Camelback’s operating
agreement to incorporate the provision granting Woodring a membership interest.
b. FL Transaction
The TAC alleges that the fraud against the Financial Professionals culminated in the theft
or unlawful conversion of their membership interests and distributions when Bayrock Group sold
a major share of its projected profits to FL Group. In January 2007, Bayrock Group made a
presentation to FL Group, an Icelandic investment company, focusing on the investments
associated with Spring Street, Camelback, Merrimac and Whitestone. Bayrock Group stated at
that presentation that those four investments would generate approximately $227.5 million in
profit for Bayrock Group. Shortly thereafter, FL Group offered $50 million in exchange for
equity interests in those four Bayrock Entities that would entitle it to 62% of the total profits (the
“FL Group Investment”). The FL Group Investment closed in late May 2007. Although some of
the transaction documents refer to the $50 million as a loan, the TAC alleges that “for all intents
and purposes, the FL Group Investment effected a sale of membership profit interests” in the
four Bayrock Entities.
According to the TAC, Bayrock Group did not own sufficient membership interests in the
four Bayrock Entities to transfer a 62% membership profit interest to FL Group. The TAC
further alleges that Arif, Satter, Schwarz and the four Bayrock Entities, as well as the Salomon
Defendants (who prepared accounting documents related to the deal) and Defendants Dogan,
Pisem and Roberts & Holland (who provided legal advice and drafted documents related to the
deal) knew that the FL Group Investment infringed the membership interests owned by the
Financial Professionals. Bayrock Group allegedly distributed portions of the $50 million
payment from FL Group to other Defendants, including a $1.5 million “professional fee” to
On two occasions between May and September 2007, Kriss inquired about the payment
of any distributions to which he was entitled under the 2005 Kriss Agreement. In response,
Satter paid Kriss a $500,000 bonus but refused to pay any distributions. Kriss resigned from
Bayrock Group in mid-September 2007. In May or June 2008, Kriss again asked Satter about
the distributions. The TAC alleges that Satter responded by presenting Kriss with a choice: drop
his demand for distributions, or accept the risk that someone Satter knew might injure or kill
Kriss. To date, none of the Financial Professionals has received any distributions from the
Bayrock Entities in which their compensation agreements granted them membership interests.
The TAC alleges 10 RICO predicate acts based on the Financial Professionals’
allegations, including mail and wire fraud, violations of the National Stolen Property Act
(“NSPA”), and extortion.
This case has a long and complicated history of which only relevant portions are
summarized below. Plaintiffs initiated this lawsuit on May 10, 2010, by filing the Original
Complaint (the “OC”). On May 12, Schwarz received a copy of the OC and emailed it to Satter,
Dogan, Salomon and Pisem. On May 14, the OC was ordered sealed and Plaintiffs were ordered
to file a redacted version of the OC within five days because of concern that the OC was based
on privileged and confidential information that had been improperly obtained. Plaintiffs did not
file a redacted version, and the Court issued a series of orders extending the time to serve
Defendants until April 1, 2013.
On April 2, 2013, the Court received a First Amended Complaint (the “FAC”). The
Court deemed the FAC timely submitted on April 1 and ordered Plaintiff to send a copy first to
Satter, and then to Bayrock Group and the Bayrock Entities (collectively, “Bayrock
Defendants”), but not to file, serve or otherwise distribute the FAC pending further court order.
The Bayrock Defendants objected to the filing of the FAC on the ground that it, too, includes
information based on privileged or confidential information. The Court then directed Plaintiffs
not to serve the FAC on any defendants other than the Bayrock Defendants but granted Plaintiffs
leave to file the FAC under seal, which they did on June 6, 2013.
On July 23, 2013, the Court referred the case to Magistrate Judge Frank Maas for
resolution of the issues that are the basis for the Bayrock Defendants’ objection to the public
filing of the FAC. On January 14, 2015, Judge Maas issued a Report and Recommendation (the
“January Report”), which recommended that the disputed paragraphs be struck from the FAC.
The Court adopted the January Report in its entirety on March 23, 2015, and ordered Plaintiffs to
file and serve a redacted version of the FAC.
Also in March 2015, Plaintiffs discharged their original counsel and retained new counsel
to represent them. Plaintiffs’ new counsel requested permission to file a Second Amended
Complaint (the “SAC”). On August 13, 2015, after reviewing the proposed SAC, Judge Maas
issued another Report and Recommendation (the “August Report”), which recommended that a
slightly redacted version of the SAC be filed and served. On November 9, 2015, the Court
adopted the August Report in its entirety and ordered Plaintiffs to file the redacted SAC by
November 23 and “promptly” serve the redacted SAC on each of the Defendants. Plaintiffs
timely filed the SAC and either served or obtained waiver of service for each of the Defendants
by late December 2015.
On March 17, 2016, Plaintiffs filed an unopposed request for leave to file the TAC,
which the Court granted. The defendants named in the TAC are a subset of the defendants
named in the OC, with the exception of Ocean Club, which was not named in the OC.
Defendants filed the instant motion to dismiss on April 15, 2016.
“On a motion to dismiss, all factual allegations in the complaint are accepted as true and
all inferences are drawn in the plaintiff’s favor.” Littlejohn, 795 F.3d at 306. “In determining
the adequacy of the complaint, the court may consider any written instrument attached to the
complaint as an exhibit or incorporated in the complaint by reference, as well as documents upon
which the complaint relies and which are integral to the complaint.” Subaru Distribs. Corp. v.
Subaru of Am., Inc., 425 F.3d 119, 122 (2d Cir. 2005) (citation omitted); see also Beauvoir v.
Israel, 794 F.3d 244, 248 n.4 (2d Cir. 2015).
“To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
“Threadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice.” Id. “[W]hatever documents may properly be considered in
connection with the Rule 12(b)(6) motion, the bottom-line principle is that ‘once a claim has
been stated adequately, it may be supported by showing any set of facts consistent with the
allegations in the complaint.’” Roth v. Jennings, 489 F.3d 499, 510 (2d Cir. 2007) (quoting
Twombly, 550 U.S. at 563).
Allegations of fraud or mistake must meet the heightened pleading standard imposed by
Federal Rule of Civil Procedure 9(b). “In the RICO context, Rule 9(b) calls for the complaint to
specify the statements it claims were false or misleading, give particulars as to the respect in
which plaintiffs contend the statements were fraudulent, state when and where the statements
were made, and identify those responsible for the statements.” Moore v. PaineWebber, Inc., 189
F.3d 165, 173 (2d Cir. 1999). “In addition, the plaintiffs must allege facts that give rise to a
strong inference of fraudulent intent.” Id. However, Rule 9(b) applies only to allegations of
fraud or mistake; other elements of a RICO claim are “measured under the more liberal pleading
requirements of Rule 8(a).” Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 26 n.4 (2d
Statute of Limitations
Except as to claims against Lauria, the claims asserted in the TAC are timely under the
applicable statute of limitations because the claims relate back to the date the OC was filed.
Because the statute of limitations is an affirmative defense, Defendants carry the burden
of showing that Plaintiffs failed to plead timely claims. See Staehr v. Hartford Fin. Servs. Grp.,
Inc., 547 F.3d 406, 425 (2d Cir. 2008) (“The lapse of a limitations period is an affirmative
defense that a defendant must plead and prove.” (citing Fed. R. Civ. P. 8(c)(1))). Dismissal
based on an affirmative defense at the complaint stage is warranted only if “it is clear from the
face of the complaint, and matters of which the court may take judicial notice, that the plaintiff’s
claims are barred as a matter of law.” Staehr, 547 F.3d at 425 (emphasis omitted) (quoting
Conopco, Inc. v. Roll Int’l, 231 F.3d 82, 86 (2d Cir. 2000)).
Plaintiffs’ RICO claims have a four-year statute of limitations. Agency Holding Corp. v.
Malley-Duff & Assocs., Inc., 483 U.S. 143, 156 (1987); Koch v. Christie’s Int’l PLC, 699 F.3d
141, 148 (2d Cir. 2012). Plaintiffs’ state law claims1 have either a three-year or six-year statute
of limitations. See N.Y. C.P.L.R. §§ 213, 214.2 Defendants do not identify precisely when the
statute of limitations began to run on each claim, but aver that it was no later than 2007.
Assuming for purposes of this motion that the limitations period began to run in 2007, even the
six-year limitations period expired well before the TAC was filed in 2016. However, to the
extent that any claim asserted in the TAC relates back to the filing of the OC on May 10, 2010,
then that claim is timely.
For issues or claims governed by state law, this Opinion applies New York law because the
parties do. See Arch Ins. Co. v. Precision Stone, Inc., 584 F.3d 33, 39 (2d Cir. 2009) (“The
parties’ briefs assume that New York substantive law governs the issues . . . presented here, and
such implied consent is, of course, sufficient to establish the applicable choice of law.”).
See also Prichard v. 164 Ludlow Corp., 854 N.Y.S.2d 53, 54 (1st Dep’t 2008) (applying sixyear statute of limitations to fraudulent inducement claim); Hahn Auto. Warehouse, Inc. v. Am.
Zurich Ins. Co., 967 N.E.2d 1187, 1190 (N.Y. 2012) (“Under CPLR 213(2), a claim for breach
of contract is governed by a six-year statute of limitations.”); Susman v. Commerzbank Capital
Markets Corp., 945 N.Y.S.2d 5, 8 (1st Dep’t 2012) (applying three-year statute of limitations to
tortious interference claim); Komolov v. Segal, 947 N.Y.S.2d 14, 15 (1st Dep’t 2012) (“threeyear statute of limitations applicable to the conversion claims”); Yatter v. William Morris
Agency, Inc., 682 N.Y.S.2d 198, 199 (1st Dep’t 1998) (“A breach of fiduciary duty claim falls
under either a three-year or six-year limitation period, depending on the nature of the relief
sought.”); Matana v. Merkin, 957 F. Supp. 2d 473, 494 (S.D.N.Y. 2013) (for unjust enrichment
claims under New York law, “[t]he limitations period is six years where plaintiff seeks an
equitable remedy, but three years where plaintiff seeks monetary damages.”).
Federal Rule of Civil Procedure 15(c)(1)(B) provides that “[a]n amendment to a pleading
relates back to the date of the original pleading when . . . the amendment asserts a claim or
defense that arose out of the conduct, transaction, or occurrence set out -- or attempted to be set
out -- in the original pleading.” The Second Circuit has explained that the “central inquiry”
under Rule 15 is “whether adequate notice of the matters raised in the amended pleading has
been given to the opposing party within the statute of limitations by the general fact situation
alleged in the original pleading.” Slayton v. Am. Exp. Co., 460 F.3d 215, 228 (2d Cir. 2006), as
amended (Oct. 3, 2006) (internal quotation marks and citation omitted). Accordingly, “claims
that are based on an ‘entirely distinct set’ of factual allegations will not relate back,” but claims
that are a “natural offshoot” of the allegations contained in the original pleading will. Id.
The Second Circuit considered the relation back doctrine in the context of a RICO claim
in Tho Dinh Tran v. Alphonse Hotel Corp., 281 F.3d 23, 36 (2d Cir. 2002), overruled on other
grounds by Slayton, 406 F.3d at 226–28. There, the plaintiff amended his complaint to add a
RICO claim based on newly discovered evidence that the defendants bribed union officers, and
the district court held that the amended complaint related back to the original. Id. at 29. As a
general matter, the Second Circuit explained that:
If the original complaint referred to general acts of fraud or other predicate acts
that might support a RICO claim, then a later amendment adding a RICO claim
would “relate back” to the original complaint. Even if the description of such an
act of fraud was not fully developed or specifically described as part of a RICO
conspiracy, it would put the defendants on notice that the conduct was at issue.
Id. at 36 (citation omitted). In that particular case, however, the Second Circuit held that the
RICO claim did not relate back because the original complaint made no reference to bribery of
union officers, and bribery was the only predicate act alleged that could have given rise to a
RICO claim. Id.
Here, the “general fact situation” alleged in the OC gave all Defendants except Lauria
adequate notice that the conduct on which the TAC is based was at issue. Slayton, 406 F.3d at
228. The OC is, in Plaintiffs’ words, “a sprawling document that portrays virtually every act by
each of the Defendants as illegal and injurious to Plaintiffs.” The OC alleges at the outset that:
Bayrock does conduct legitimate real estate business, but for most of its existence
it was substantially and covertly mob-owned and operated. Arif, Satter, and
Schwarz operated it for years through a pattern of continuous related crimes,
including mail, wire, and bank fraud; tax evasion; money laundering; conspiracy;
bribery; extortion; and embezzlement.
The following 164 pages of the OC lay out specific allegations of fraudulent or criminal acts by
Arif, Satter and Schwarz, various Bayrock entities, and their lawyers and accountants. Although
the OC focuses primarily on allegations of tax evasion that have been abandoned in the TAC, the
OC contains at least some allegations about each and every claim, as well as all the RICO
predicate acts, set forth in the TAC.3 The OC also contains allegations connecting each
The relevant OC allegations include the following examples (from Docket No. 406):
Claims alleged in the TAC:
RICO: ¶¶ 9, 14
RICO conspiracy: ¶ 14
Fraudulent inducement: ¶¶ 147–48
Breach of contract: ¶ 685
Tortious interference: ¶¶ 519–22
Conversion: ¶¶ 519–22
Aiding & abetting conversion: ¶¶ 544–47
Breach of fiduciary duty: ¶¶ 36–38, 143, 145, 685
Aiding & abetting breach of fiduciary duty: ¶¶ 59, 143, 145
Alter ego/corporate veil piercing: ¶¶ 105, 108
Unjust enrichment: ¶¶ 147–48, 685
RICO predicate acts alleged in the TAC:
Initial Trump Fraud: ¶¶ 106, 124
Thieriot Fraud & NSPA: ¶¶ 84, 87, 110, 312–24
Camelback Fraud & NSPA: ¶¶ 117, 124
Trump SoHo Fraud & NSPA: ¶¶ 129, 234, 481, 494–98
iStar Fraud: ¶¶ 129, 234, 480–92, 751
Capmark/Camelback Fraud: ¶¶ 467–77
Defendant -- with one exception, as explained below -- to conduct relevant to the claims asserted
in the TAC. The OC therefore gave all but one of the Defendants adequate notice that the
conduct underlying the claims in the TAC was at issue in this case. See Slayton, 460 F.3d at 228
(“[W]here an initial complaint alleges a basic scheme of defrauding investors by misrepresenting
earnings and profitability, an allegation of accounts receivable manipulation in an amended
complaint will relate back because it is a natural offshoot of that scheme.” (citation and internal
quotation marks omitted)).
The claims in the TAC against Lauria do not relate back. The only allegations made
about Lauria in the OC are that he was previously one of Satter’s “partners in crime” and
received $1.7 million from Satter “on Bayrock’s dime” for no other reason than “gratitude for
Lauria’s serving a prison sentence for racketeering while Satter avoided prison by testifying
against 20 Mafia and Russian mob associates.” These allegations, which suggest that Lauria was
nothing more than a passive recipient of Satter’s allegedly ill-gotten gains, did not provide
Lauria notice of the factual basis for any of the TAC’s claims against him. See Tho Dinh Tran,
281 F.3d at 36 (“Rather than merely adding a new legal theory based on the same facts as those
presented in the original complaint, the plaintiff’s amendment introduced a significant new
factual allegation that fundamentally changed the nature of the allegations . . . .”) Accordingly,
the claims asserted against Lauria in the TAC do not relate back to the OC and therefore are
barred by the applicable statute of limitations.
Capmark/Whitestone Fraud: ¶¶ 163, 478–79
Kriss Fraud & NSPA: ¶¶ 66, 91, 102
Ejekam Fraud & NSPA: ¶¶ 101, 650–51
Woodring Fraud & NSPA: ¶¶ 346, 650–51
Extortion of Kriss: ¶ 123
Defendants’ reliance on United States v. Baylor University Medical Center, 469 F.3d 263
(2d Cir. 2006), superseded by statute, 31 U.S.C. § 3731(c), is misplaced. In Baylor, the Second
Circuit held that the Government’s complaint-in-intervention did not relate back to the original,
sealed qui tam complaint because the secrecy of qui tam actions is incompatible with the notice
required for relation back under Rule 15. Id. at 270. Here, however, the OC was not treated with
the secrecy of a qui tam complaint. The OC was initially filed on the public docket. The Court
ordered the OC sealed four days later, but not before it had been disseminated “to certain named
defendants and others.” Schwarz indicated in an affidavit filed in a related action that, before the
OC was sealed, he emailed an unredacted copy to Satter, Dogan, Salomon and Pisem. Given that
Schwarz is Bayrock Group’s general counsel, Salomon is a partner of Salomon & Co., and Pisem
is a partner of Roberts & Holland, this email effectively gave all Defendants other than Lauria
access to the OC and notice of the allegations contained therein. Gold Star, Inc. v. Lloyds of
London Ins. Underwriters, 113 F.3d 1229 (2d Cir. 1997) (“It is elemental that the knowledge of
an agent . . . is imputed to the principal.” (internal quotation marks and citation omitted)); N.Y.
P’ship Law § 20 (“Every partner is an agent of the partnership for the purpose of its business
. . . .”).
The R&H Defendants also argue unpersuasively that, in order for the TAC’s claims
against them to relate back to the OC, the additional requirements of Rule 15(c)(1)(C) must be
satisfied. Rule 15(c)(1)(C) applies where the amended pleading “changes the party or the
naming of the party against whom a claim is asserted.” Although named as defendants in the
OC, the R&H Defendants argue that the TAC “changes the party . . . against whom a claim is
asserted” by dropping as a defendant another law firm that the OC alleged played a leading role
in the 2007 FL Transaction. This novel interpretation of Rule 15(c)(1)(C) is rejected. This
argument would have merit only if the OC alleged that the other law firm performed all the
relevant work on the 2007 FL Transaction, thereby giving the R&H Defendants no notice that
their work on that transaction was also at issue. The OC, however, alleged and provided notice
of the claim that the R&H Defendants played a significant role in the 2007 FL Transaction. See
Slayton, 460 F.3d at 228; Siegel v. Converters Transp., Inc., 714 F.2d 213, 216 (2d Cir. 1983)
(“When a suit is filed in a federal court . . . , the defendant knows that the whole transaction
described in it will be fully sifted, by amendment if need be.” (internal quotation marks and
citation omitted)). Thus, the TAC’s claims against the R&H Defendants relate back to the OC
and are timely.
Timeliness of Service
The delay in effecting service of process on Defendants neither requires nor warrants
dismissal of this action under Federal Rule of Civil Procedure 4(m), which states:
If a defendant is not served within 90 days after the complaint is filed, the court -on motion or on its own after notice to the plaintiff -- must dismiss the action
without prejudice against that defendant or order that service be made within a
specified time. But if the plaintiff shows good cause for the failure, the court
must extend the time for service for an appropriate period.4
Even in the absence of good cause, a court may in its discretion extend the time for service.
Zapata v. City of New York, 502 F.3d 192, 196 (2d Cir. 2007); Fed. R. Civ. P. 4(m) Advisory
Committee’s note to 1993 amendment.
Here, the Court ordered that the OC not be further disseminated after May 14, 2010, and
extended the time for service -- “good cause having been shown” -- several times, ultimately
through April 1, 2013. On April 1, 2013, the Court received the FAC and ordered that it be
Rule 4(m) was amended as of December 1, 2015, to reduce the presumptive time for serving a
defendant from 120 days to 90 days. See Fed. R. Civ. P. 4(m) Advisory Committee’s note to
distributed to Satter and the Bayrock Defendants only, pending resolution of those defendants’
objections to the FAC’s reliance on privileged or confidential information. Those objections
took two years to resolve, by which time Plaintiffs had retained new counsel who wished to file
the SAC. Once the Court granted leave, in November 2015, for Plaintiffs to file and serve the
SAC, Plaintiffs served or obtained waivers of service from all Defendants within 90 days. In
light of this unusual procedural history, the Court exercises its discretion to extend the time for
service nunc pro tunc from April 1, 2013, until February 23, 2016, which was 90 days after the
SAC was filed. See Fed. R. Civ. P. 4(m); Zapata, 502 F.3d at 196. Timely service was therefore
The TAC sufficiently pleads a substantive RICO claim under 18 U.S.C. § 1962(c) as to
Arif, Satter, Schwarz and the Bayrock Entities, and a RICO conspiracy claim under 18 U.S.C. §
1962(d) involving Arif, Satter, Schwarz and the Salomon Defendants. To prevail on a civil
RICO claim, “a plaintiff must show (1) a violation of the RICO statute, 18 USC § 1962; (2) an
injury to business or property; and (3) that the injury was caused by a violation of Section 1962.”
Spool v. World Child Int’l Adoption Agency, 520 F.3d 178, 183 (2d Cir. 2008) (internal quotation
marks omitted). To establish a substantive RICO violation, a plaintiff must show a ‘pattern of
racketeering activity,’” id. (quoting 81 USC § 1962(a)–(c)), “and to establish a RICO conspiracy,
a plaintiff must show a conspiracy to commit a substantive RICO violation.” Id. (citing 18 USC
RICO Violations Under § 1962
a. Substantive RICO Claims
The TAC states substantive RICO claims under § 1962(c) as to Arif, Satter, Schwarz and
the Bayrock Entities, but fails to plead the conduct element as to the R&H Defendants, Dogan
and the Salomon Defendants.
In order to plead a substantive RICO claim under 18 U.S.C. § 1962(c), a plaintiff must
allege “(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” City of
New York v. Smokes-Spirits.com, Inc., 541 F.3d 425, 439 (2d Cir. 2008) (quoting Sedima,
S.P.R.L. v. Imrex Co., 473 U.S. 479, 492 (1985)), rev’d on other grounds sub nom. Hemi Group
LLC v. City of New York, 559 U.S. 1 (2010). “The requirements of section 1962(c) must be
established as to each individual defendant.” DeFalco v. Bernas, 244 F.3d 286, 306 (2d Cir.
i. Racketeering Activity
The TAC sufficiently pleads predicate acts of racketeering as to all Defendants named in
Kriss’s and Ejekam’s respective substantive RICO claims (collectively, the “RICO
“Racketeering activity” is defined in 18 U.S.C. § 1961(1) to include a variety of offenses
including, as relevant here, mail fraud under 18 U.S.C. § 1341, wire fraud under 18 U.S.C. §
1343, violations of the NSPA under 18 U.S.C. §§ 2314 and 2315, and “any act or threat
involving . . . extortion . . . which is chargeable under State law and punishable by imprisonment
for more than one year.” For reasons explained below, each Plaintiff must allege that each RICO
Count One is Plaintiff Kriss’s substantive RICO claim against all Defendants except Bayrock
Group, which is alleged to be a RICO enterprise. Count Two is Plaintiff Ejekam’s substantive
RICO claim against all Defendants except Bayrock Group, Ocean Club, Merrimac and
Defendant committed at least two of these predicate acts, one of which must have caused injury
to Plaintiff’s business or property. See DeFalco, 244 F.3d at 306.
The TAC adequately alleges at least one predicate act of mail or wire fraud against each
Plaintiff and involving all RICO Defendants. Mail fraud occurs when a person “having devised
or intending to devise any scheme or artifice to defraud,” uses the mail “for the purpose of
executing such scheme or artifice or attempting so to do.” 18 U.S.C. § 1341. Similarly, wire
fraud occurs when a person “having devised or intending to devise any scheme or artifice to
defraud, . . . transmit[s] . . . by means of wire, radio, or television communication . . . any
writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice.”
18 U.S.C. § 1343. Because these predicate acts sound in fraud, they must be pleaded with
particularity pursuant to Rule 9(b), Fed. R. Civ. P. See Moore, 189 F.3d at 172–73.
The TAC alleges that (i) the Material Information, Bad Faith Practices and IllegallyStructured Satter Payments were omitted or concealed (ii) by each Defendant at various, specific
times (iii) in the context of negotiations over employment and compensation (iv) resulting in the
Bayrock Group Enterprise receiving Plaintiffs’ professional services for less than they otherwise
would have agreed. Because the Material Information, Bad Faith Practices and IllegallyStructured Satter Payments, as pleaded, were known to RICO Defendants and essential to the
negotiations, they had a duty to disclose them under New York’s “special facts doctrine.” See
United States v. Autuori, 212 F.3d 105, 118 (2d Cir. 2000) (“The [mail and wire] fraud statutes
are violated by affirmative misrepresentations or by omissions of material information that the
defendant has a duty to disclose.”); United States v. Margiotta, 688 F.2d 108, 124 (2d Cir. 1982)
(noting that state law is one possible source of a duty to disclose for purposes of the federal mail
fraud statute); Connaughton v. Chipotle Mexican Grill, Inc., 23 N.Y.S.3d 216, 223 (1st Dep’t
2016) (“[T]his Court has recognized the existence of an alternative basis for allowing fraud
claims to proceed based on omissions, even in arm’s length transactions in the absence of a
fiduciary or confidential relationship, ‘where one party’s superior knowledge of essential facts
renders a transaction without disclosure inherently unfair.’” (quoting PT Bank Cent. Asia, N.Y.
Branch v. ABN AMRO Bank N.V., 754 N.Y.S.2d 245, 252 (1st Dep’t 2003)).
The TAC also alleges that some of these negotiations and the various documents related
to them were conducted remotely, through interstate or international mail or wires. Together,
these allegations plausibly allege a predicate act of mail or wire fraud by each RICO Defendant.
The TAC also sufficiently alleges at least one predicate act under the NSPA involving
each Plaintiff and each RICO Defendant. As relevant here, the elements of a violation of § 2314
of the NSPA are that “(1) the defendant transported property, as defined by the statute, in
interstate commerce, (2) the property was worth $5,000 or more, and (3) the defendant knew the
property was ‘stolen, converted or taken by fraud.’” United States v. Wallach, 935 F.2d 445, 466
(2d Cir. 1991) (quoting Dowling v. United States, 473 U.S. 207, 214 (1985)); see 18 U.S.C. §
2314. Pleading a violation of § 2315 of the NSPA requires the same elements, except instead of
transport of property there must be a sale or receipt of property. See 18 U.S.C. § 2315; United
States v. Kapelioujnyj, 547 F.3d 149, 153 (2d Cir. 2008).
The TAC alleges that Schwarz transported and all RICO Defendants sold or received,
through interstate commerce, Plaintiffs’ membership interests in various Bayrock Entities in
connection with their involvement in the 2007 FL Transaction. Specifically, the TAC alleges
that the RICO Defendants knew that the 2007 FL Transaction granted the FL Group a greater
share of membership interests in Merrimac, Camelback, Whitestone and Spring Street than
Bayrock Group owned at the time, thereby effectively stealing or converting some portion, worth
at least $5000, of Plaintiffs’ membership interests in those same Bayrock Entities. The TAC also
specifies what role each RICO Defendant played in the NSPA violations: Arif, Satter and
Schwarz negotiated and, on behalf of the Bayrock Defendants, executed the 2007 FL
Transaction; the Salomon Defendants prepared accounting documents for the transaction that
concealed Plaintiffs’ membership interests; and Dogan and the R&H Defendants provided legal
advice and drafted documents that embodied the transaction. While Defendants argue that
Plaintiffs’ membership interests had not vested, and thus could not have been stolen from them,
at the time of the 2007 FL Transaction, this argument involves factual determinations that cannot
be made at the motion to dismiss stage, as explained more fully below in relation to Plaintiffs’
breach of contract claim. Read in a light most favorable to Plaintiffs, the TAC adequately
alleges a predicate act under the NSPA against each Plaintiff and by each RICO Defendant.
Because the TAC satisfies the racketeering element based on the alleged predicate acts of
mail or wire fraud and violations of the NSPA against Plaintiffs, it is not necessary to determine
whether the other predicate acts alleged in the TAC satisfy the pleading standard. See
Kalimantano GmbH v. Motion in Time, Inc., 939 F. Supp. 2d 392, 405 (S.D.N.Y. 2013).
The TAC adequately pleads a pattern of racketeering activity. To satisfy RICO’s pattern
element, a plaintiff must establish at least two predicate acts of racketeering activity that are
related and continuous. See 18 U.S.C. § 1961(5); H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229,
238 (1989). Relatedness and continuity “must be stated separately, though in practice their proof
will often overlap.” H.J. Inc., 492 U.S. at 239.
“Predicate acts are ‘related’ for RICO purposes when they ‘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.’” Schlaifer Nance & Co. v. Estate
of Warhol, 119 F.3d 91, 97 (2d Cir. 1997) (quoting H.J. Inc., 492 U.S. at 240). The predicate
acts discussed above -- mail or wire fraud and violations of the NSPA -- are clearly related. Both
allegedly were committed (i) by all RICO Defendants (ii) against Plaintiffs (iii) by means of
fraudulent documents and transactions (iv) with the purpose and (v) result of enriching
Defendants, particularly Arif and Satter. The relatedness requirement is therefore met. See
Procter & Gamble Co. v. Big Apple Indus. Bldgs., Inc., 879 F.2d 10, 19 (2d Cir. 1989) (“The
alleged acts had the same purpose, that is, fleecing the same victims . . . and employ[ed] similar
unlawful methods of commission -- namely, the misrepresentation of [defendant’s] experience,
of construction costs and the padding of billings to plaintiffs.”).
“‘Continuity’ is both a closed- and open-ended concept, referring either to a closed period
of repeated conduct, or to past conduct that by its nature projects into the future with a threat of
repetition.” H.J. Inc., 492 U.S. at 241. Either a closed- or open-ended pattern can satisfy the
continuity requirement of the pattern element. Kalimantano, 939 F. Supp. 2d at 406. Plaintiffs
argue that the TAC alleges a closed-ended pattern. As the Second Circuit has explained,
Closed-ended continuity is demonstrated by predicate acts that “amount to
continued criminal activity,” by a particular defendant. To satisfy closed-ended
continuity, the plaintiff must prove “a series of related predicates extending over a
substantial period of time. Predicate acts extending over a few weeks or months
. . . do not satisfy this requirement.”
Cofacredit, S.A. v. Windsor Plumbing Supply Co., 187 F.3d 229, 242 (2d Cir. 1999) (quoting
H.J. Inc., 492 U.S. at 242). Duration is the primary factor courts consider when determining
whether closed-ended continuity exists, and “the Second Circuit has never held a period of
racketeering activity lasting less than two years to be substantial enough to qualify.”
Kalimantano, 939 F. Supp. 2d at 412 (citing DeFalco, 244 F.3d at 321) (research updated
through November 30, 2016). Other relevant factors include the number and variety of predicate
acts, the number of participants and victims and the presence of separate schemes. Id.
Here, the predicate acts suffice to show closed-ended continuity. The mail or wire fraud
predicates began in 2003, when Plaintiffs were first induced to work for Bayrock Group, and
continued through 2007, when the FL Transaction was executed and the NSPA predicates
occurred. This 4-year duration is twice as long as the 2-year guideline, which has been held
sufficient in similar cases. See Procter & Gamble, 879 F.2d at 18 (finding continuity where mail
fraud predicates across five separate schemes spanned two years); United States v. Cain, 671
F.3d 271, 288 (2d Cir. 2012) (“The extortions occurred over more than two years, which we have
held is a sufficient period to support a finding of closed-ended continuity.”); City of New York v,
LaserShip, Inc., 33 F. Supp. 3d 303, 311 (S.D.N.Y. 2014) (finding closed-ended continuity
where predicates spanned 26 months). Additionally, the number of alleged participants in the
predicate acts (eight individuals, five Bayrock Entities, a law firm and an accounting firm) and
the existence of two separate schemes (one to fraudulently induce Plaintiffs to perform work in
exchange for membership interests, the other to divest them of those membership interests)
support a finding of closed-ended continuity. See Kalimantano, 939 F. Supp. 2d at 412 (citing
DeFalco, 244 F.3d at 321).6
Because the alleged predicate acts are both related and continuous, the TAC adequately
pleads a pattern of racketeering activity.
In addition to the NSPA and mail or wire fraud predicate acts discussed in this Opinion, the
TAC alleges numerous other predicate acts perpetrated against individuals other than Plaintiffs.
These other alleged predicate acts support the conclusion that the TAC describes “a fraudulent
scheme of sufficient breadth or reach to meet the pattern requirement.” Kalimantano, 939 F.
Supp. 2d at 414.
The TAC adequately alleges the existence of an enterprise of which all RICO Defendants
were a part.
RICO defines an “enterprise” to include a “group of individuals associated in fact
although not a legal entity.” 18 U.S.C. § 1961(4). “[A]n association-in-fact enterprise must have
at least three structural features: a purpose, relationships among those associated with the
enterprise, and longevity sufficient to permit these associates to pursue the enterprise’s purpose.”
Boyle v. United States, 556 U.S. 938, 946 (2009). An association-in-fact enterprise “need not
have a hierarchical structure, a chain of command, or other business-like attributes,” but it “must
have an ascertainable structure beyond that inherent in the pattern of racketeering activity in
which it engages.” United States v. Applins, 637 F.3d 59, 73 (2d Cir. 2011) (internal quotation
omitted) (citing Boyle, 556 U.S. at 945–47).
Here, the TAC adequately alleges that the Bayrock Group Enterprise was an associationin-fact enterprise involving all the RICO Defendants. The TAC alleges that the Enterprise
commenced operation in 2003, when Arif and Satter agreed to operate the Bayrock Entities with
the purpose “to enrich themselves personally at the expense of third parties.” The TAC further
alleges that the Enterprise grew in size between 2003 and 2007, at which point it involved all
RICO Defendants -- a collection of Bayrock Group leaders, Bayrock Entities and outside
accountants and attorneys. These allegations provide the purpose, relationships and longevity
required of an association-in-fact enterprise, and describe a structure beyond that inherent in the
pattern of racketeering activity discussed above. The enterprise element of Plaintiffs’ RICO
claim is therefore satisfied.
The TAC adequately alleges RICO’s conduct element as to Arif, Satter, Schwarz and the
Bayrock Entities, but not as to the R&H Defendants, Dogan and the Salomon Defendants.
Section 1962(c) makes it “unlawful for any person employed by or associated with” a
RICO enterprise “to conduct or participate, directly or indirectly, in the conduct of such
enterprise’s affairs through a pattern of racketeering activity.” The Supreme Court has held that
in order to be liable under this provision, “one must participate in the operation or management
of the enterprise itself.” Reves v. Ernst & Young, 507 U.S. 170, 185 (1993). “Simply alleging
that certain entities provide services which are helpful to an enterprise without any allegations
that those entities exert any control over the enterprise does not sufficiently allege a claim under
RICO against those entities.” Smokes-Spirits.com, 541 F.3d at 449. Accordingly, “the provision
of professional services by outsiders, such as accountants, to a racketeering enterprise, is
insufficient to satisfy the participation requirement of RICO.” Hayden v. Paul, Weiss, Rifkind,
Wharton & Garrison, 955 F. Supp. 248, 254 (S.D.N.Y. 1997) (citing Reves, 507 U.S. at 188).
The TAC adequately alleges that Arif, Satter, Schwarz and the Bayrock Entities -- which
were controlled by Arif, Satter and Schwarz -- participated in the operation or management of
the Bayrock Group Enterprise. For example, the TAC alleges that Arif and Satter executed
Plaintiffs’ compensation agreements and the 2007 FL Transaction, and that Schwarz oversaw
payments -- including the Illegally-Structured Satter Payments -- and the work performed by the
Salomon Defendants and R&H Defendants. These and similar allegations demonstrate the
“operation or management” necessary to satisfy RICO’s conduct element under Reves as to these
defendants. See 507 U.S. at 185.
In contrast, the TAC lacks allegations sufficient to satisfy RICO’s conduct element as to
the R&H Defendants, Dogan and the Salomon Defendants. According to the TAC, the R&H
Defendants did not even become associated with the Enterprise until 2007 and worked with the
Enterprise only on the 2007 FL Transaction. Dogan allegedly became associated with the
Enterprise in 2005 and helped negotiate Schwarz’s compensation agreement, but otherwise
Dogan’s only involvement was with the 2007 FL Transaction. The role that the R&H
Defendants and Dogan allegedly played in this transaction is typical of lawyers: “providing legal
advice, communicating with counsel representing FL Group and negotiating and drafting the
documents that embodied the transaction.” Nowhere does the TAC allege that the R&H
Defendants or Dogan went beyond the provision of legal services and directed any of the
Bayrock Group Enterprise’s affairs. The TAC claims that the R&H Defendants and Dogan
“played a critical role in planning and executing the FL Group Investment” and “failed to
advise” other Defendants “that transferring rights associated with the membership interests
owned by Plaintiffs . . . was wrongful, illegal and/or criminal.” However, going beyond a
professional’s customary role or even committing misconduct does not establish “operation or
management” of the enterprise. See Azrielli v. Cohen Law Offices, 21 F.3d 512, 521–22 (2d
Cir.1994) (provision of legal services in context of fraudulent real estate transaction does not
establish conduct element).
The TAC makes more allegations against the Salomon Defendants -- including that
they became involved in the Enterprise in 2003 and prepared financial documents in
connection with many alleged fraudulent schemes -- but still fails to show that the Salomon
Defendants directed the Enterprise in any way. To the contrary, the TAC indicates that
Schwarz directed them:
Schwarz . . . oversaw the accounting work performed by Defendants Salomon,
Weinreich and Salomon & Co. on Bayrock Group’s behalf. Schwarz gave
Salomon, Weinreich and Salomon & Co. direction and instruction, causing these
Defendants to prepare financial statements, tax filings and related documents in a
manner designed to conceal improper and/or illegal Bayrock Group transactions,
create the impression that Bayrock Group and its investments were being operated
in a routine and above-board manner and disguise the extent of Satter’s
managerial role and ownership interest in Bayrock Group.
The conduct element therefore is not satisfied as to the Salomon Defendants. See Hayden, 955
F. Supp. at 254 (accounting firm’s misrepresentations and omissions of material facts in financial
statements for the enterprise did not equate to participation in the operation or management of
the enterprise); Dep’t of Econ. Dev. v. Arthur Andersen & Co., 924 F. Supp. 449, 469 (S.D.N.Y.
1996) (accounting firm’s concealment of an enterprise’s fraudulent activities did not amount to
operation or management).
In sum, the TAC adequately alleges all the elements of a substantive RICO claim under §
1962(c) as to Arif, Satter, Schwarz and the Bayrock Entities, but fails to allege the conduct
element as to the remaining RICO Defendants. Consequently, the substantive RICO claim is
dismissed against the R&H Defendants, Dogan and the Salomon Defendants.
b. RICO Conspiracy Claims
The TAC sufficiently pleads the elements of RICO conspiracy claims under § 1962(d) as
to Arif, Satter, Schwarz and the Salomon Defendants, but not as to Dogan, the R&H Defendants
or the Bayrock Entities.7
“[T]he requirements for RICO’s conspiracy charges under § 1962(d) are less demanding”
than those for substantive RICO claims. Baisch v. Gallina, 346 F.3d 366, 376 (2d Cir. 2003).
“A ‘conspirator must intend to further an endeavor which, if completed, would satisfy all of the
Count Three is Plaintiff Kriss’s RICO conspiracy claim against all Defendants except Bayrock
Group. Count Four is Plaintiff Ejekam’s RICO conspiracy claim against all Defendants except
Bayrock Group, Ocean Club, Merrimac and Camelback.
elements of a substantive criminal offense, but it suffices that he adopt the goal of furthering or
facilitating the criminal endeavor.’” Id. at 376–77 (quoting Salinas v. United States, 522 U.S.
52, 65 (1997)). “In the civil context, a plaintiff must allege that the defendant ‘knew about and
agreed to facilitate the scheme.’” Id. at 377 (quoting Salinas, 522 U.S. at 66).
As to Arif, Satter and Schwarz, several allegations in the TAC suggest that they knew
about and agreed to facilitate the fraudulent scheme. First, the Arif/Satter Agreement allegedly
called for Bayrock Group to be operated in a way that would create a pattern of racketeering
activity. Second, once the $50 million proceeds from the 2007 FL Transaction were deposited
into Bayrock Group’s New York bank account, Arif, Satter and Schwarz had portions of these
proceeds transferred to their personal accounts, suggesting coordination with each other. Third,
Arif, Satter and Schwarz each allegedly committed multiple predicate acts. See City of New York
v. Chavez, No. 11 Civ. 2691, 2012 WL 1022283, at *8 (S.D.N.Y. Mar. 26, 2012) (“When a
defendant has personally committed several acts of racketeering in furtherance of the enterprise’s
affairs, the inference of an agreement [to join the conspiracy] is unmistakable.”). Based on these
allegations, the TAC adequately alleges a RICO conspiracy claim against Arif, Satter and
The TAC contains factual allegations sufficient to plead that the Salomon Defendants
also knew about and agreed to facilitate the fraudulent scheme. The Salomon Defendants served
as accountants for Bayrock Group from 2003 through 2008 and, in that capacity, knew about and
approved the Illegally-Structured Satter Payments and prepared documents related to many of
the alleged predicate acts, including the NSPA and mail or wire fraud predicate acts. This
extensive participation in the alleged scheme supports an inference that the Salomon Defendants
“adopt[ed] the goal of furthering or facilitating the criminal endeavor.” Baisch, 346 F.3d at 376–
77 (quoting Salinas, 522 U.S. at 65). Although the Salomon Defendants’ alleged conduct did not
satisfy the conduct element of a substantive RICO violation, as explained above, that does not
foreclose liability under a RICO conspiracy claim. See Salinas, 522 U.S. at 64 (“A person,
moreover, may be liable for conspiracy even though he was incapable of committing the
As to Dogan and the R&H Defendants, however, the TAC fails to plead facts showing
that they knew about and agreed to the fraudulent scheme. The TAC alleges only that Dogan
and the R&H Defendants helped to devise and execute the 2007 FL Transaction, albeit with
knowledge of Plaintiffs’ allegedly conflicting compensation agreements. The TAC does not
allege that Dogan and the R&H Defendants participated in or even knew about any of the other
alleged predicate acts. Nor does the TAC allege that Dogan and the R&H Defendants entered
into any explicit agreement regarding the alleged Enterprise or received any proceeds from the
fraudulent scheme other than “substantial compensation for their work on the FL Group
Investment.” The RICO conspiracy claims against Dogan and the R&H Defendants are therefore
The RICO conspiracy claims also fail as to the Bayrock Entities. The intracorporate
conspiracy doctrine holds that a corporation cannot conspire with its agents. See Turkmen v.
Hasty, 789 F.3d 218, 263 (2d Cir. 2015) (“[D]efendants -- officers and directors of a single
corporation, and the corporation itself -- could not legally conspire with one another . . . because
the defendants formed a ‘single business entity with a managerial policy implemented by the one
governing board.’ Thus, the defendants could not satisfy the statutory requirement of a
conspiracy between two or more persons.” (quoting Girard v. 94th Street & Fifth Avenue Corp.,
530 F.2d 66, 70–72 (2d Cir. 1976)), cert. granted, 2016 WL 2653797 (U.S. Oct. 11, 2016).
Because the Bayrock Entities can act only through their agents Arif, Satter and Schwarz, the
Bayrock Entities cannot also participate in a conspiracy with Arif, Satter and Schwarz. The
RICO conspiracy claims against the Bayrock Entities are therefore dismissed.
The TAC adequately alleges injury to Plaintiffs. To bring a RICO claim in a civil action,
a plaintiff must have been “injured in his business or property by reason of a violation of section
1962.” 18 U.S.C. § 1964(c). “[T]he plaintiff only has standing if, and can only recover to the
extent that, he has been injured in his business or property by the conduct constituting the
violation.” Sedima, 473 U.S. at 496. “In this case, proof of injury, or whether plaintiffs have
been harmed, is bound up in proof of damages, or by how much plaintiffs have been harmed.”
McLaughlin v. Am. Tobacco Co., 522 F.3d 215, 227 (2d Cir. 2008) abrogated on other grounds
by Bridge v. Phx. Bond & Indem. Co., 553 U.S. 639 (2008). Subject to these requirements and
the proximate cause element discussed below, a plaintiff can adequately plead RICO damages by
alleging lost contracts or lost wages. See, e.g., Commercial Cleaning Servs., L.L.C. v. Colin
Serv. Sys., Inc., 271 F.3d 374, 382 (2d Cir. 2001) (finding RICO injury satisfied because, “[i]f
plaintiffs can substantiate their claims, the plaintiffs may well show that they lost contracts
directly because of the cost savings defendant realized through its scheme to employ illegal
workers”); Apollon Waterproofing & Restoration, Inc. v. Bergassi, 87 F. App’x 757, 759 (2d Cir.
2004) (summary order) (“Lost contracts that could have been obtained but for racketeering
activities are cognizable injuries under RICO.”); Tho Dinh Tran, 281 F.3d at 35 (noting without
discussion that the alleged RICO injury was lost wages); Rodonich v. House Wreckers Union,
Local 95 of Laborers’ Int’l Union of N. Am., 627 F. Supp. 176, 180 (S.D.N.Y. 1985) (“[T]o the
extent that plaintiffs’ purported injuries consist of lost wages, sufficient proprietary damage is
The TAC alleges that Plaintiffs, who are well-credentialed real estate finance
professionals, passed up lucrative opportunities at other firms to work for Bayrock Group. The
TAC further alleges that but for Defendants’ predicate acts involving the fraudulent concealment
of the Material Information, Bad Faith Practices and Illegally-Structured Satter Payments,
Plaintiffs would have rejected the terms of their compensation agreements and demanded higher
pay, either at Bayrock Group or elsewhere. These alleged damages are lost contracts or lost
wages and can potentially be recovered in a RICO claim. See Commercial Cleaning, 271 F.3d at
382; Tho Dinh Tran, 281 F.3d at 35.
The TAC sufficiently alleges that the racketeering activity caused Plaintiffs’ injury.
“[T]o state a claim under civil RICO, the plaintiff is required to show that a RICO predicate
offense ‘not only was a but for cause of his injury, but was the proximate cause as well.’” Hemi
Grp., 559 U.S. at 9 (2010) (quoting Holmes v. Sec. Inv’r Prot. Corp., 503 U.S. 258, 268 (1992)).
Proximate cause for RICO purposes “requires ‘some direct relation between the injury asserted
and the injurious conduct alleged.’ A link that is ‘too remote,’ ‘purely contingent,’ or ‘indirect’
is insufficient.” Id. (quoting Holmes, 503 U.S. at 268, 271).
Plaintiffs’ alleged lost earnings flow directly from the pattern of racketeering activity.
The Bayrock Defendants obtained Plaintiffs’ services at a relatively low rate based on the false
pretense that Plaintiffs were receiving valuable equity interests in a sound business. Because of
the alleged racketeering activity, however, Plaintiffs received no equity interests, and the
business was tainted by illegality. Defendants engaged in a pattern of racketeering activity to
deprive Plaintiffs of fair compensation by means of fraud. Although there is some question
whether Plaintiffs will be able to prove the value of the membership interests they were
promised, at the very least they could prove the value of their services, and stand to recover at
least any difference between that amount and the lesser amount they were paid. See Elsevier Inc.
v. W.H.P.R., Inc., 692 F. Supp. 2d 297, 309 (S.D.N.Y. 2010) (injury and proximate cause
adequately alleged where defendants fraudulently purchased journals at individual consumer rate
and resold them at institutional rate, thereby “pocketing what should have been Plaintiffs’
profits”). The racketeering activity is therefore directly related to Plaintiffs’ lost earnings
according to the TAC’s allegations, and the proximate cause requirement is satisfied.
In sum, the TAC states claims of (1) a substantive RICO violation under 18 U.S.C. §
1962(c) by Arif, Satter, Schwarz and the Bayrock Entities against both Plaintiffs, and (2) a RICO
conspiracy under 18 U.S.C. § 1962(d) involving Arif, Satter, Schwarz and the Salomon
Defendants against both Plaintiffs.
State Law Claims
a. Fraudulent Inducement
The TAC states claims for fraudulent inducement against Defendants named in Counts
Five and Six.8 “To state a legally cognizable claim of fraudulent inducement based on a
misrepresentation or omission, the complaint must allege that the defendant intentionally made a
material misrepresentation of fact in order to defraud or mislead the plaintiff, and that the
plaintiff reasonably relied on the misrepresentation and suffered damages as a result.”
Count Five is Plaintiff Kriss’s fraudulent inducement claim against Defendants Bayrock Group,
Arif, Satter, Ocean Club, Merrimac, Camelback, Whitestone and Spring Street. Count Six is
Plaintiff Ejekam’s fraudulent inducement claim against Defendants Bayrock Group, Arif, Satter,
Whitestone and Spring Street.
Connaughton, 23 N.Y.S. 3d at 218; see also Mandarin Trading Ltd. v. Wildenstein, 944 N.E.2d
1104, 1108 (N.Y. 2011). As discussed above in the context of the RICO claims, the TAC
sufficiently alleges that Defendants knowingly concealed the Material Information, Bad Faith
Practices and Illegally-Structured Satter Payments with the intent to deceive Plaintiffs and induce
them to enter employment and compensation agreements with Bayrock Group, which resulted in
lost earnings for Plaintiffs.
b. Breach of Contract
The TAC adequately pleads breach of contract claims against Defendants named in
Counts Seven and Eight.9 The elements for a breach of contract claim under New York law are:
“(1) the existence of an agreement, (2) adequate performance of the contract by the plaintiff, (3)
breach of contract by the defendant, and (4) damages.” Harsco Corp. v. Segui, 91 F.3d 337, 348
(2d Cir. 1996) (applying New York law); accord Harris v. Seward Park Hous. Corp., 913
N.Y.S.2d 161 (1st Dep’t 2010). The TAC alleges, and the parties do not dispute, that Plaintiffs
each had contracts with Bayrock Group, Arif, Satter and various Bayrock Entities. The TAC
also details how plaintiffs adequately performed under the contracts and alleges that Defendants
breached by failing to pay them millions of dollars in membership distributions to which they
were entitled under the agreements. The TAC therefore states a claim for breach of contract
against Defendants named in Counts Seven and Eight.
Defendants’ contrary arguments fail. As to Kriss, Defendants contend that he failed to
plead a condition precedent to his receiving distributions under the Kriss 2005 Agreement -- that
Arif had “first received a 10% return of his Total Principal Company Contribution.” This
Count Seven is Plaintiff Kriss’s contract claim against Defendants Bayrock Group, Arif, Satter,
Ocean Club, Merrimac, Camelback, Whitestone and Spring Street. Count Eight is Plaintiff
Ejekam’s contract claim against Defendants Bayrock Group, Arif, Satter, Whitestone and Spring
argument ignores the rule under New York law that “[t]he performance or occurrence of a
condition precedent in a contract need not be pleaded.” N.Y. C.P.L.R. 3015(a). See also 1199
Hous. Corp. v. Int’l Fid. Ins. Co., 788 N.Y.S.2d 88, 89 (1st Dep’t 2005) (“In an action on a
contract, the obligation to raise the issue of compliance with conditions precedent rests on the
party disputing their performance or occurrence.”).
As to both Plaintiffs, Defendants argue that the agreements did not grant membership
interests, but rather “profit interests,” in various Bayrock Entities. This interpretation defies the
plain language of both the Kriss 2005 Agreement and the Ejekam 2006 Agreement. These
agreements may be considered on this motion as they are integral to the TAC and were submitted
with Defendants’ joint motion papers. The Kriss 2005 Agreement states in part that
“‘Executive’s Membership Interest’ means a non-dilutable 10% non-voting membership interest
in the Company and each of the Company Entities,” and the Ejekam 2006 Agreements state in
part that “Ejekam shall be entitled . . . to a 2% membership profit interest” (emphasis added).
Because the language of these agreements does not unambiguously support Defendants’
argument, Plaintiffs’ breach of contract claims survive. See Greenfield v. Philles Records, Inc.,
780 N.E.2d 166, 170–71 (N.Y. 2002) (“[A] written agreement that is complete, clear and
unambiguous on its face must be enforced according to the plain meaning of its terms. . . . A
contract is unambiguous if the language it uses has a definite and precise meaning, unattended by
danger of misconception in the purport of the [agreement] itself, and concerning which there is
no reasonable basis for a difference of opinion.” (internal quotation marks and citations
Similarly premature is Defendants’ argument that even if the agreements conveyed
membership interests, Plaintiffs were not entitled to distributions of the proceeds from the 2007
FL Transaction because that transaction was structured as a loan, not a sale. This issue cannot be
resolved on the face of the TAC or the Plaintiffs’ agreements and therefore cannot be addressed
on a motion to dismiss.
c. Tortious Interference with Contract
The TAC does not state a claim of tortious interference with contract as to any
Defendants named in Counts Nine or Ten.10 “A claim of tortious interference requires proof of
(1) the existence of a valid contract between plaintiff and a third party; (2) the defendant’s
knowledge of that contract; (3) the defendant’s intentional procuring of the breach, and (4)
damages.” Foster v. Churchill, 665 N.E.2d 153, 156 (N.Y. 1996).
Here, none of the Defendants named in Counts Nine or Ten can be liable for tortious
interference with Plaintiffs’ agreements because these Defendants are officers or agents of the
Bayrock Defendants. “[I]t is well settled that an agent cannot be held liable for inducing [its]
principal to breach a contract with a third person, at least where [it] is acting on behalf of [its]
principal and within the scope of [its] authority.” Devash LLC v. German Am. Capital Corp.,
959 N.Y.S.2d 10, 15 (1st Dep’t 2013) (quoting Nu-Life Const. Corp. v. Board of Educ. of City of
N.Y., 611 N.Y.S.2d 529, 530 (1st Dep’t 1994)); see also Murtha v. Yonkers Child Care Ass’n,
Inc., 383 N.E.2d 865, 866 (N.Y. 1978) (“A director of a corporation is not personally liable to
one who has contracted with the corporation on the theory of inducing a breach of contract,
merely due to the fact that, while acting for the corporation, he has made decisions and taken
steps that resulted in the corporation’s promise being broken.” (internal quotation marks
Counts Nine and Ten are Plaintiffs’ respective tortious interference claims against all
Defendants except the Bayrock Defendants.
The TAC fails to state a claim for conversion or aiding and abetting conversion. “A
conversion takes place when someone, intentionally and without authority, assumes or exercises
control over personal property belonging to someone else, interfering with that person’s right of
possession.” Colavito v. N.Y. Organ Donor Network, Inc., 860 N.E.2d 713, 717 (N.Y. 2006).
Intangible property, such as ownership interests, generally cannot be converted unless a physical
or electronic record of the intangible property, such as a stock certificate, is converted. See
Thyroff v. Nationwide Mut. Ins. Co., 864 N.E.2d 1272, 1275–78 (N.Y. 2007). A conversion
claim will lie for “recovery of a particular and definite sum of money,” Thys v. Fortis Sec. LLC,
903 N.Y.S.2d 368, 369 (1st Dep’t 2010), but not for “the mere right to payment.” Selinger
Enters., Inc. v. Cassuto, 860 N.Y.S.2d 533, 536 (2d Dep’t 2008).
The TAC does not allege that Defendants converted any physical or electronic record of
Plaintiffs’ membership interests, as is necessary for such intangible property to be the subject of
a conversion claim. See Thyroff, 864 N.E.2d at 1275–78. Nor does the TAC allege that
Plaintiffs ever possessed the millions of dollars in distributions to which they claim they are
entitled. See Selinger, 860 N.Y.S.2d at 536 (holding that unpaid broker’s commission could not
be the subject of a conversion claim). Accordingly, Plaintiffs’ claims for conversion and aiding
and abetting conversion are dismissed.
e. Breach of Fiduciary Duty
The TAC states claims for breach of fiduciary duty and aiding and abetting breach of
fiduciary duty against Defendants named in Counts Thirteen and Fourteen.11
Count Thirteen is Plaintiffs’ fiduciary duty claim against Defendants Arif, Satter, Schwarz and
Bayrock Group. Count Fourteen is Plaintiffs’ aiding and abetting fiduciary duty claim against
“To state a claim for breach of fiduciary duty, a plaintiff must allege the existence of a
fiduciary relationship, misconduct by the other party, and damages directly caused by that
party’s misconduct.” Castellotti v. Free, 27 N.Y.S.3d 507, 517 (1st Dep’t 2016). “A fiduciary
relationship arises between two persons when one of them is under a duty to act for or to give
advice for the benefit of another upon matters within the scope of the relation. . . . Ascertaining
the existence of a fiduciary relationship inevitably requires a fact-specific inquiry.” Roni LLC v.
Arfa, 963 N.E.2d 123, 124–25 (N.Y. 2011) (internal quotation marks and citations omitted). As
explained above, the TAC adequately pleads that Plaintiffs obtained membership interests in
various Bayrock Entities. As fellow members of the Bayrock Entities with management
authority, the Defendants named in Count Thirteen owed a fiduciary duty to Plaintiffs with
respect to matters concerning the Bayrock Entities. See Pokoik v. Pokoik, 982 N.Y.S.2d 67, 70
(1st Dep’t 2014) (“As the managing member of the LLCs, [defendant] owed plaintiff -- a
nonmanaging member -- a fiduciary duty.”); Salm v. Feldstein, 799 N.Y.S.2d 104, 105 (2d Dep’t
2005) (“As the managing member of the [LLC] and as a co-member with the plaintiff, the
defendant owed the plaintiff a fiduciary duty to make full disclosure of all material facts.”). Also
as explained above, the TAC sufficiently alleges that these Defendants defrauded and mistreated
Plaintiffs in various ways. Accordingly, Count Thirteen states a claim for breach of fiduciary
duty against these Defendants.
“[U]nder New York law, a plaintiff generally states a claim for aiding and abetting upon
alleging facts sufficient to support an inference of (1) the existence of an underlying tort; (2) the
defendant’s knowledge of the underlying tort; and (3) that the defendant provided substantial
assistance to advance the underlying tort’s commission.” Bigio v. Coca-Cola Co., 675 F.3d 163,
Defendants Arif, Satter, Schwarz, Salomon, Weinreich, Dogan, Pisem, Salomon & Co. and
Roberts & Holland.
172 (2d Cir. 2012) (alterations, internal quotation marks and citation omitted). According to the
TAC, the Defendants named in Count Fourteen knew about the breach of fiduciary duty just
described and performed services that could be considered substantial assistance -- usually
drafting legal or accounting documents that concealed the Material Information, Bad Faith
Practices and Illegally-Structured Satter Payments from Plaintiffs. Count Fourteen therefore
states a claim for aiding and abetting breach of fiduciary duty.
f. Alter Ego/Corporate Veil Piercing
The TAC’s allegations of alter ego or corporate veil piercing against Defendants Arif,
Satter and Schwarz are sufficient to state a claim.12 Generally, “piercing the corporate veil
requires a showing that: (1) the owners exercised complete domination of the corporation in
respect to the transaction attacked; and (2) that such domination was used to commit a fraud or
wrong against the plaintiff which resulted in plaintiff’s injury.” Morris v. N.Y. State Dep’t of
Taxation & Fin., 623 N.E.2d 1157, 1160 (N.Y. 1993). These elements are satisfied here based
on many of the same allegations supporting the RICO claims, namely that Arif, Satter and
Schwarz dominated the Bayrock Defendants and used that domination to perpetrate various
frauds on Plaintiffs.
“Historically, piercing the corporate veil was a remedy used by a successful plaintiff to collect
a judgment when the corporate defendant was judgment-proof and the shareholders, officers, or
directors had assets. Motions to pierce the corporate veil typically would be filed in connection
with efforts to execute on a judgment. In the current environment, however, plaintiffs often
assert entitlement to veil piercing at the complaint stage.” Elizabeth S. Fenton, Trends in
Piercing the Corporate Veil, Bus. Torts & Unfair Competition (Am. Bar Ass’n Section of Litig.,
Chicago, Ill.), July 31, 2013,
g. Unjust Enrichment
The TAC’s unjust enrichment claim is dismissed as duplicative of Plaintiffs’ other
claims. To plead a claim of unjust enrichment, “the plaintiff must allege that (1) the other party
was enriched, (2) at that party’s expense, and (3) that it is against equity and good conscience to
permit the other party to retain what is sought to be recovered.” Georgia Malone & Co. v.
Rieder, 973 N.E.2d 743, 746 (N.Y. 2012) (internal citation omitted). “An unjust enrichment
claim is not available where it simply duplicates, or replaces, a conventional contract or tort
claim.” Corsello v. Verizon N.Y., Inc., 967 N.E.2d 1177, 1185 (N.Y. 2012). “It is available only
in unusual situations when, though the defendant has not breached a contract nor committed a
recognized tort, circumstances create an equitable obligation running from the defendant to the
plaintiff.” Id. Here, the TAC alleges that Defendants have breached multiple contracts and
committed multiple torts. “To the extent that these claims succeed, the unjust enrichment claim
is duplicative; if plaintiffs’ other claims are defective, an unjust enrichment claim cannot remedy
the defects.” Id.
All other arguments in the parties’ submissions related to this motion have been
considered and determined to lack merit.
For the foregoing reasons, Defendants’ motion to dismiss is GRANTED with respect to:
Defendant Salvatore Lauria;
Plaintiffs’ substantive RICO claims as to Defendants Elliot Pisem, Roberts &
Holland LLP, Alex Salomon, Jerry Weinreich, Salomon & Co., P.C. and Mel
Plaintiffs’ RICO conspiracy claims as to Defendants Elliot Pisem, Roberts &
Holland LLP, Mel Dogan, Bayrock Ocean Club LLC, Bayrock Merrimac LLC,
Bayrock Camelback LLC, Bayrock Whitestone LLC, Bayrock Spring Street,
Plaintiffs’ tortious interference with contract claims;
Plaintiffs’ conversion and aiding and abetting conversion claims; and
Plaintiffs’ unjust enrichment claims.
The motion is DENIED as to all other claims. For clarity the surviving claims and
Defendants are as follows:
Plaintiffs’ substantive RICO claims as to Defendants Tevfik Arif, Felix Satter,
Julius Schwarz, Bayrock Ocean Club LLC, Bayrock Merrimac LLC, Bayrock
Camelback LLC, Bayrock Whitestone LLC, Bayrock Spring Street, LLC;
Plaintiffs’ RICO conspiracy claims as to Defendants Tevfik Arif, Felix Satter,
Julius Schwarz, Alex Salomon, Jerry Weinreich, Salomon & Co.;
Plaintiffs’ fraudulent inducement claims, which are asserted against Defendants
Bayrock Group LLC, Tevfik Arif, Felix Satter, Bayrock Ocean Club LLC,
Bayrock Merrimac LLC, Bayrock Camelback LLC, Bayrock Whitestone LLC,
Bayrock Spring Street, LLC;
Plaintiffs’ breach of contract claims, which are asserted against Defendants
Bayrock Group LLC, Tevfik Arif, Felix Satter, Bayrock Ocean Club LLC,
Bayrock Merrimac LLC, Bayrock Camelback LLC, Bayrock Whitestone LLC,
Bayrock Spring Street, LLC;
Plaintiffs’ breach of fiduciary duty and aiding and abetting breach of fiduciary
duty claims, which are asserted against Defendants Tevfik Arif, Felix Satter,
Julius Schwarz, Bayrock Group LLC, Alex Salomon, Jerry Weinreich, Salomon
& Co., Mel Dogan, Elliot Pisem, Roberts & Holland LLP; and
Plaintiffs’ alter ego/corporate veil piercing claims, which are asserted against
Defendants Tevfik Arif, Felix Satter, Julius Schwarz.
The Clerk of Court is directed to close the motion at Dkt. No. 330.
Dated: December 2, 2016
New York, New York