4 K & D Corporation et al v. Concierge Auctions, LLC et al
Filing
25
OPINION AND ORDER re: 10 MOTION to Dismiss. MOTION to Dismiss for Lack of Jurisdiction. filed by Segue LLC, Concierge Auctions, LLC, CA Partners, LLC, Michael Russo, Brady Hogan Investments, LLC, Laura Brady, George Graham. The Court has considere d all of the arguments of the parties. To the extent not specifically addressed above, the remaining arguments are either moot or without merit. For the foregoing reasons, the defendants' motion to dismiss is granted except with respect to the c laim under § 1962(c) by plaintiffs Deborah Jarol and Sherwin Jarol against defendants Brady and Russo, as to which the motion to dismiss is denied. The Clerk is directed to close Docket No. 10. (Signed by Judge John G. Koeltl on 3/10/2014) (lmb)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
────────────────────────────────────
4 K & D Corporation, ET AL.,
Plaintiffs,
13 Civ. 2527 (JGK)
- v.-
OPINION AND ORDER
Concierge Auctions, LLC, ET AL.,
Defendants.
────────────────────────────────────
JOHN G. KOELTL, District Judge:
The plaintiffs, 4 K & D Corporation d/b/a Grand Estates
Auction Company (“Grand Estates”), Deborah Jarol, and Sherwin
Jarol1 bring this action alleging violations of the Racketeer
Influenced and Corrupt Organizations (RICO) Act, 18 U.S.C.
§ 1961 et seq., and New York General Business Law §§ 349 and
350.
The plaintiffs also bring a claim for tortious
interference with contractual and business relationships.
All of the claims arise out of the alleged fraudulent
business conduct of defendants Concierge Auctions, LLC
(“Concierge”), Laura Brady, George Graham, Michael Russo, CA
Partners, LLC (“CA Partners”), Segue LLC (“Segue”), and Brady
Hogan Investments, LLC (“BHI”).
The action alleges that
Concierge engaged in various false and deceptive practices to
obtain customers for its business of conducting auctions for
1
Two of the original plaintiffs in this action, John Bloeser and
Nancy Bloeser, voluntarily discontinued all of their claims
against the defendants and are no longer parties to this action.
luxury homes, and that their practices damaged Grand Estates,
which conducted a rival auction business.
Also included as
defendants are ten unnamed John/Jane Doe individuals and ten
unnamed ABC Corporations.
The current lawsuit also concerns
actions of non-party Chad Roffers.
Because several claims arise under the RICO Act, and the
state law claims are based on the same operative facts,
jurisdiction is proper pursuant to 28 U.S.C. §§ 1331 and 1367.
The defendants now move to dismiss the Amended Complaint for
failure to state a claim under Federal Rule of Civil Procedure
12(b)(6).
The motion is granted in part and denied in part.
I.
In deciding a motion to dismiss pursuant to Rule 12(b)(6),
the allegations in the complaint are accepted as true, and all
reasonable inferences must be drawn in the plaintiff’s favor.
McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir.
2007).
The Court’s function on a motion to dismiss is “not to
weigh the evidence that might be presented at a trial but merely
to determine whether the complaint itself is legally
sufficient.”
1985).
Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir.
The Court should not dismiss the complaint if the
plaintiff has stated “enough facts to state a claim to relief
that is plausible on its face.”
Bell Atl. Corp. v. Twombly, 550
2
U.S. 544, 570 (2007).
“A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the
misconduct alleged.”
(2009).
Ashcroft v. Iqbal, 556 U.S. 662, 678
While the Court should construe the factual allegations
in the light most favorable to the plaintiff, “the tenet that a
court must accept as true all of the allegations contained in
the complaint is inapplicable to legal conclusions.”
Id.
When
presented with a motion to dismiss pursuant to Rule 12(b)(6),
the Court may consider documents that are referenced in the
complaint, documents that the plaintiff relied on in bringing
suit and that are either in the plaintiff’s possession or that
the plaintiff knew of when bringing suit, or matters of which
judicial notice may be taken.
See Chambers v. Time Warner,
Inc., 282 F.3d 147, 153 (2d Cir. 2002).
II.
The Court accepts the plaintiff’s allegations in the
Amended Complaint as true for purposes of this motion to
dismiss.
Plaintiff Grand Estates and defendant Concierge are
two auction houses directly competing against each other in the
national market for luxury home auctions.
50.)
(Am. Compl. ¶¶ 48-
Grand Estates is a North Carolina corporation in business
since 1999 with its principal place of business in North
3
Carolina, while Concierge is a Florida limited liability company
formed in 2008 with its principal place of business in New York,
New York.
(Am. Compl. ¶¶ 16-17, 20-21).
The alleged fraudulent
conduct of Concierge involved actions of the other defendants
named in the Amended Complaint and non-party Roffers.
Roffers was an original managing member of Concierge at its
founding in 2008 and continues to be employed by and act as an
officer of Concierge.
(Am. Compl. ¶¶ 21, 27.)
Roffers’s wife
and mother-in-law own 95% and 5% of CA Partners, respectively,
and CA Partners owns 40% of Concierge.
(Am. Compl. ¶¶ 23, 26.)2
From the formation of Concierge in 2008 until March 2012,
Roffers was employed by CA Partners and worked for Concierge as
an “independent contractor” with the title of “Head of Client
Services.”
(Am. Compl. ¶¶ 24, 25.)
Defendant Brady is the president of Concierge.
¶ 29.)
(Am. Compl.
Brady previously worked for Roffers as a real estate
broker and served as vice president of marketing at Concierge.
(Am. Compl. ¶¶ 30, 56.)
Brady also owns defendant BHI, a
Florida limited liability company; BHI replaced Brady as a
member of Concierge as of January 2012.
(Am. Compl. ¶¶ 32, 45,
46.)
2
CA Partners was also named a managing member of Concierge in
the April 2010 filing with the Florida Secretary of State, but
was removed in a subsequent filing in May 2010. (Am. Compl.
¶¶ 42, 43.)
4
Defendant Russo is the chief operating officer of
Concierge.
(Am. Compl. ¶ 35.)
Russo also owns defendant Segue,
a limited liability company that became a member of Concierge as
of January 2012.
(Am. Compl. ¶¶ 37, 45, 46.)
Defendant Graham was the chief executive officer of
Concierge until 2012 and was a member of Concierge as of April
2010, April 2011, and January 2012.
(Am. Compl. ¶¶ 34, 42-44.)
Graham’s interest in Concierge was subsequently bought out, and
Graham is no longer employed by Concierge.
(Am. Compl. ¶¶ 34,
47.)
The plaintiffs allege that the defendants fraudulently
induced sellers of luxury real estate to enter into auction
contracts with Concierge by making false promises and various
misrepresentations about Concierge’s auction results, sales
statistics, and track records, and that the defendants engaged
in other fraudulent conduct such as using shill bidders,
allowing bids from unregistered bidders, and adding a reserve at
the last minute.
114, 291-332.)
(E.g. Am. Compl. ¶¶ 82-85, 87, 95-97,
As a result, Grand Estates was allegedly harmed
because sellers chose Concierge instead of Grand Estates or
other auction houses due to the defendants’ misrepresentations
to the sellers.
(Am. Compl. ¶ 83.)
In addition, the plaintiffs allege that the defendants used
the income from their fraudulent business practice to pay
5
Realogy Services Group, LLC (“Realogy”) to promote Concierge’s
services through Realogy’s subsidiary, Sotheby’s International
Realty (“SIR”).
(Am. Compl. ¶¶ 55, 64, 66, 75, 381.)
Prior to
the formation of Concierge, Roffers owned Sky Sotheby, an SIR
franchisee, which allegedly experienced difficulty in the market
downturn in 2008, causing Roffers to be indebted to SIR.
(Am.
Compl. ¶¶ 53, 60.)
During the same year, Concierge was formed.
(Am. Compl. ¶ 21.)
After Realogy terminated Sky Sotheby as a
franchisee, Realogy entered into a Strategic Alliance Agreement
with Concierge which named Concierge as Realogy’s “preferred”
auctioneer so that Concierge could perform auctions to pay back
Roffers’s debt to SIR.
(Am. Compl. ¶¶ 61-63.)
As a result of
the agreement, SIR franchisees were instructed to refer their
clients to Concierge for auction services.
(Am. Compl. ¶¶ 66,
72.)
With respect to plaintiffs Sherwin Jarol and Deborah Jarol
(“the Jarols”), the plaintiffs allege that the defendants made
various misrepresentations through personal and wire
communications, including statements about Concierge’s
experience and success rates as well as prospects for a
successful sale.
(Am. Compl. ¶¶ 155, 158, 161, 162, 164.)
The
Jarols then contracted with Concierge to auction their property.
(Am. Compl. ¶ 166.)
In addition, the agreement between the
Jarols and Concierge required that a $100,000 “break-up fee” be
6
placed into an escrow account to be released to Concierge if the
Jarols chose to cancel the auction.
(Am. Compl. ¶ 170.)
After
the defendants misrepresented to the Jarols the number of
bidders, the auction did occur but no bids were received.
Compl. ¶¶ 189-90, 192.)
However, the defendants still caused
the break-up fee to be released to Concierge.
¶ 203.)
(Am.
(Am. Compl.
In addition, the plaintiffs allege that, contrary to
the express direction of the Jarols, Concierge marketed the
Jarols’ property as a no-reserve auction and misled potential
buyers that the Jarols were in financial distress and were
motivated to sell.
(Am. Compl. ¶¶ 173-74, 177, 207.)
As a
result, the Jarols allegedly suffered damages including loss of
the $100,000 break-up fee and increased difficulty in subsequent
attempts at selling their property.
(Am. Compl. ¶¶ 116-50, 208-
09.)
The plaintiffs allege that the defendants acted similarly
in their handling of at least five other properties, including
the property of former parties John Bloeser and Nancy Bloeser.
The defendants allegedly made false representations to the
owners of these properties regarding Concierge’s past success
and sales in order to be hired; the defendants also allegedly
engaged in other fraudulent conduct such as supplying false
bidder information.
(Am. Compl. ¶¶ 116-50, 210-79.)
In
addition, the plaintiffs allege seven other instances in which
7
sellers were in touch with Grand Estates but eventually
contracted with Concierge because of the false representations
by the defendants.
(Am. Compl. ¶¶ 335-66.)
III.
The plaintiffs bring four claims under the RICO Act, 18
U.S.C. §§ 1962(a)-(d), 1964(c).
Section 1964(c) provides that
“[a]ny person injured in his business or property by reason of a
violation of [18 U.S.C. § 1962] may sue therefor in any
appropriate United States district court.”
18 U.S.C. § 1964(c).
The claim for violation of § 1962(c) is asserted against
defendants Graham, Russo, Brady, and CA Partners.
Under
§ 1962(c),
[i]t shall be unlawful for any person
employed
by
or
associated
with
any
enterprise engaged in, or the activities of
which
affect,
interstate
or
foreign
commerce,
to
conduct
or
participate,
directly or indirectly, in the conduct of
such enterprise’s affairs through a pattern
of racketeering activity or collection of
unlawful debt.
Id. § 1962(c).
In order to state a claim under § 1962(c), a
plaintiff must allege “(1) conduct (2) of an enterprise (3)
though a pattern (4) of racketeering activity.”
DeFalco v.
Bernas, 244 F.3d 286, 306 (2d Cir. 2001) (quoting Sedima,
S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985)).
“Racketeering
activity” encompasses, among other things, any act indictable
8
for crimes enumerated under 18 U.S.C. § 1961(1)(B), which
include, for purposes relevant to the present case, acts of wire
fraud (18 U.S.C. § 1343).
To establish a “pattern” of
racketeering activity, a plaintiff must plead “at least two
predicate acts, [and] show that the predicate acts are related,
and that they amount to, or pose a threat of, continuing
criminal activity.”
Schlaifer Nance & Co. v. Estate of Warhol,
119 F.3d 91, 97 (2d Cir. 1997) (citing H.J. Inc. v. Northwestern
Bell Tel. Co., 492 U.S. 229, 239 (1989)).
“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.’” Id. (quoting H.J.
Inc., 492 U.S. at 240).
A.
The defendants first argue that the § 1962(c) claim fails
because the plaintiffs have failed to allege that the RICO
“enterprise” was different from the “persons” alleged to have
violated § 1962(c).
A plaintiff asserting a RICO claim arising
under § 1962(c) “must allege and prove the existence of two
distinct entities: (1) a ‘person’; and (2) an ‘enterprise’ that
is not simply the same ‘person’ referred to by a different
name,” Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158,
9
161 (2001), because the statute applies only to “‘person[s]’ who
are ‘employed by or associated with’ the ‘enterprise.’”
Id.
(citing and quoting 18 U.S.C. § 1962(c)) (alteration in
original).
Under such a “distinctness” requirement, “a
corporate entity may not be both the RICO person and the RICO
enterprise under section 1962(c).”
Riverwoods Chappaqua Corp.
v. Marine Midland Bank, N.A., 30 F.3d 339, 344 (2d Cir. 1994).
A corporation may be held liable as a RICO “person” only if “it
associates with others to form an enterprise that is
sufficiently distinct from itself.”
Id.
Courts have repeatedly dismissed § 1962(c) claims alleging
that a corporation was simultaneously a RICO “person” and a RICO
“enterprise” (or part of a RICO “enterprise” from which the
corporation is not distinct).
See, e.g. Cruz v. FXDirectDealer,
LLC, 720 F.3d 115 (2d Cir. 2013); Anatian v. Coutts Bank
(Switzerland) Ltd., 193 F.3d 85, 89 (2d Cir. 1999); Riverwoods,
30 F.3d at 344.
In Riverwoods, the Second Circuit Court of
Appeals held that a complaint failed to state a claim under
§ 1962(c) because the plaintiffs alleged that the corporation
was a RICO “person” and that the corporation plus all its
employees and agents was the RICO “enterprise,”3 from which the
3
Indeed, in Cedric Kushner, the Supreme Court called this
“enterprise” in Riverwoods an “oddly constructed entity,” and
noted that “[i]t is less natural to speak of a corporation as
‘employed by’ or ‘associated with’” such an entity. 533 U.S. at
10
corporation can hardly be considered distinct.
30 F.3d at 344.
Similarly, in Cruz, a recent decision on which the defendants in
this case rely, the Court of Appeals held that the complaint’s
allegations failed to satisfy the distinctness requirement in a
case in which a corporation was alleged to be a RICO “person”
conducting the deceptive practices of a RICO “enterprise” not
distinct from the corporation.
Cruz, 720 F.3d at 120-21.
After
disregarding various alleged members of the “enterprise” because
they lacked a “common purpose to engage in a particular
fraudulent cause of conduct,” the Court of Appeals was left with
an “enterprise” that was alleged to consist of the corporation
itself, its parent company, its chief operating officer, and its
corporate counsel.
Id. (internal citations omitted).
Therefore, cases like Cruz and Riverwoods make it clear that, if
a plaintiff alleges a corporation to be a RICO “person” and
seeks to hold it liable for § 1962(c) violations, the RICO
“enterprise” cannot consist solely of the corporation plus its
owners and/or employees.
On the other hand, the distinctness requirement may be
satisfied if a complaint alleges a corporation itself to be the
RICO “enterprise,” with its owners or employees being the RICO
“persons” conducting the affairs of the corporation through a
164 (citing Riverwoods, 30 F.3d at 344).
11
pattern of racketeering activities.4
163.
Cedric Kushner, 533 U.S. at
In Cedric Kushner, a unanimous Supreme Court found a
complaint to have satisfied the distinctness requirement even
though the alleged RICO “person” was the president and sole
shareholder of the corporation which was the alleged RICO
“enterprise.”
Id.
The Supreme Court reasoned that “[t]he
corporate owner/employee, a natural person, is distinct from the
corporation itself, a legally different entity with different
rights and responsibilities . . . ,” id., and that § 1962(c)
does not require any more distinctness than such a legal
separation between the person and the corporate entity, id. at
165.
Subsequent cases have followed this distinction.5
See,
e.g., Kalimantano GmbH v. Motion in Time, Inc., 939 F. Supp. 2d
4
The RICO statute imposes liability on a “person” who is
employed by or associated with an “enterprise” and conducts or
participates in the conduct of the affairs of the enterprise in
a prohibited way. 18 U.S.C. § 1962(c). The statute does not
impose liability on the enterprise itself. The plaintiff could
not allege a claim against a corporation as a defendant “person”
while also claiming that the corporation was the “enterprise.”
That would violate the distinctness requirement. See Jaguar
Cars, Inc. v. Royal Oaks Motor Car Co., Inc., 46 F.3d 258, 268
(3d Cir. 1995); Eldred v. Comforce Corp., No. 08 Civ. 1171, 2010
WL 812698, at *12 (N.D.N.Y. Mar. 2, 2010).
5
Indeed, in City of New York v. Smokes-Spirits.com, Inc., 541
F.3d 425 (2d Cir. 2008), rev’d and remanded on other grounds sub
nom. Hemi Grp., LLC v. City of New York, 559 U.S. 1 (2010), the
Second Circuit Court of Appeals held that even a sole
proprietorship could be a RICO “enterprise” and satisfy the
distinctness requirement, so long as the sole proprietorship is
not “strictly a one-man show.” Id. at 448-49 (quoting and
citing McCullough v. Suter, 757 F.2d 142, 144 (7th Cir. 1985))
(internal quotation marks omitted).
12
392, 405 (S.D.N.Y. 2013); U1IT4less, Inc. v. FedEx Corp., 896 F.
Supp. 2d 275, 287-88 (S.D.N.Y. 2012) (finding sufficient
distinctness “where a parent corporation and its subsidiary are
alleged to be the RICO ‘person,’ and a separately incorporated
subsidiary is alleged to be the RICO ‘enterprise’”).
In this case, the plaintiffs allege Concierge to be the
RICO “enterprise,” (Am. Compl. ¶ 12), and allege that defendants
Brady, Russo, Graham, and CA Partners were RICO “persons” who
“operated or otherwise managed Concierge through a pattern of
racketeering activity.”
(Am. Compl. ¶ 411; Pls.’ Mem. in Opp.
to Defs.’ Mot. Dismiss (“Pls.’ Mem.”) at 14-15.)6
The claim
under § 1962(c) is brought against these RICO persons only and
not against Concierge.
Therefore, it is clear that the
plaintiffs do not seek to hold Concierge liable for the
§ 1962(c) claim as a RICO “person” but only allege that
Concierge was the “enterprise.”
This plainly satisfies the
distinctness requirement under Cedric Kushner.
533 U.S. at 163;
see also Kalimantano, 939 F. Supp. 2d at 405; U1IT4less, 896 F.
Supp. 2d at 287-88.
6
The plaintiffs allege in the alternative that there was a RICO
“enterprise-in-fact consisting of all of the Defendants”
including Concierge, (Am. Compl. ¶ 413), but do not rely on that
theory in their Memorandum of Law and abandoned that theory at
the oral argument of the pending motion. (Tr. of Oral Argument
on Oct. 31, 2013 (“Tr.”) at 31-32.)
13
B.
To state a RICO claim, the plaintiff must allege two or
more related “predicate acts” that constitute a “pattern” of
racketeering activity.
Schlaifer Nance & Co., 119 F.3d at 97.
A plaintiff must allege, at a minimum, that “a defendant
personally committed or aided and abetted the commission of two
predicate acts.”
McLaughlin v. Anderson, 962 F.2d 187, 192 (2d
Cir. 1992) (citing H.J. Inc., 492 U.S. at 237; Sedima, 473 U.S.
at 496 n.14).
The defendants argue that the plaintiffs’
allegations of predicate acts fail to satisfy the particularity
requirement of Federal Rule of Civil Procedure 9(b).
The RICO
predicate acts in this case consist of alleged instances of wire
fraud.7
Rule 9(b) provides that, “[i]n alleging fraud or
mistake, a party must state with particularity the circumstances
constituting fraud or mistake.”
Fed. R. Civ. P. 9(b).
“The
particularity requirement of Rule 9(b) serves to ‘provide a
defendant with fair notice of a plaintiff’s claim, to safeguard
a defendant’s reputation from improvident charges of wrongdoing,
and to protect a defendant against the institution of a strike
suit.’”
Rombach v. Chang, 355 F.3d 164, 171 (2d Cir. 2004)
(quoting O’Brien v. Nat’l Property Analysts Partners, 936 F.2d
674, 676 (2d Cir. 1991)).
In cases in which a plaintiff makes
7
The plaintiffs also alleged an instance of bank fraud under 18
U.S.C. § 1344 as an additional predicate act, but have withdrawn
that allegation. (Tr. at 30-31.)
14
specific averments of fraud as predicate acts for RICO claims,
“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) (citing and
quoting McLaughlin, 962 F.2d at 191).
The defendants argue that the plaintiffs’ allegations fail
to satisfy the particularity requirement because they do not
provide the exact time and location of the statements or the
identity of the speaker.
However, the particularity requirement
is not a mechanical formula demanding exacting precision but
must instead be applied in view of its express purposes and the
facts of each case.
See Gelles v. TDA Indus., Inc., No. 90 Civ.
5133, 1991 WL 39673, at *6 (S.D.N.Y. Mar. 18, 1991) (“Rule 9(b)
does not require that a complaint plead fraud with the detail of
a desk calendar or a street map.”); see also The Limited, Inc.
v. McCrory Corp., 683 F. Supp. 387, 393 (S.D.N.Y. 1988) (“The
nature and extent of the detail required will vary with the
circumstances of each case.
In general, however, defendants
must be apprised of the nature of the allegedly false
statements, by whom they were made and when, in what manner the
statements were false, how they misled plaintiff, and what
15
defendants obtained as a result of the alleged fraud.”
(citations omitted)).
Indeed, some of the plaintiffs’ allegations fall short of
the particularity requirement under Rule 9(b) because they fail
to provide any information as to the specific circumstances
constituting wire fraud.
(E.g. Am. Compl. ¶¶ 95-103.)
However,
certain other allegations have satisfied the particularity
requirement.
In particular, the plaintiffs allege material
misrepresentations in the marketing materials transmitted over
the internet in which Concierge provided false statistics and
track records regarding its past sales and history; multiple
property sellers allegedly relied on these misrepresentations in
entering into contracts with Concierge.
(E.g. Am. Compl.
¶¶ 116-29 (November 2010 pitch to sellers of 60 Round Hill
Road), 136-37 (same), 151-55 (spring 2009 pitch to the Jarols),
189-91 (same), 244 (June 2012 pitch to the property in
Mooresville, North Carolina).)
Therefore, with respect to each
of these sellers, the plaintiffs’ allegations have provided
sufficient information regarding the approximate time and the
context of each of these statements to state the circumstances
constituting wire fraud.
The defendants also argue that the alleged false statements
attributed to “Concierge” do not satisfy the particularity
requirement because no specific speaker is identified.
16
However,
many of these statements appear in the marketing or pitching
materials disseminated in the name of Concierge, which can
properly be attributed to the business.
(E.g. Am. Compl. ¶¶ 86,
89, 112-13, 116, 121, 155, 212, 259, 269, 342.)
The plaintiffs
allege that defendant Brady, as vice president of marketing and
as president for Concierge, “controlled Concierge’s marketing
and public relations.”
(Am. Compl. ¶¶ 30-31, 267.)
The
plaintiffs also allege that Russo, as the chief operating
officer of Concierge, “directed or otherwise knowingly caused
the misrepresentations in the marketing materials to be issued
by Concierge.”
(Am. Compl. ¶¶ 35, 38, 267, 369.)
“[T]o
constitute a [mail or wire fraud] violation . . . it is not
necessary to show that [defendants] actually mailed [or wired]
. . . anything themselves; it is sufficient if they caused it to
be done.”
Smokes-Spirits.com, 541 F.3d at 446 (alterations in
original) (quoting Pereira v. United States, 347 U.S. 1, 8
(1954)).
Therefore, by alleging that Russo and Brady controlled
marketing and caused false statements to be made in the name of
Concierge, the plaintiffs have provided sufficient allegations
regarding the persons responsible for the statements.
In addition, the plaintiffs have alleged specific instances
in which defendant Russo personally made misrepresentations to
the sellers over telephone, emails, and through the internet,
such as the misrepresentations in connection with the auctions
17
of the property of former plaintiffs John and Nancy Bloeser
around November 2011 and another property in Edwards, Colorado
in 2011, (Am. Compl. ¶¶ 116, 126, 210-12).
These sellers
allegedly relied on Russo’s misrepresentation in contracting
with Concierge.
(Am. Compl. ¶¶ 127, 211-12.)
Hence, the plaintiffs have sufficiently alleged that
defendants Russo and Brady directed, caused, or at least aided
and abetted multiple false statements to be made to specific
sellers by use of the wires.
Therefore, the plaintiffs’
allegations have satisfied the particularity requirement for
pleading fraud.
The defendants have not otherwise challenged the
sufficiency of the pleading of wire fraud as the pattern of RICO
predicate acts.8
“Where a plaintiff in a RICO claim alleges
racketeering activity based on the predicate acts of violating
the mail or wire fraud statutes, he or she must prove three
elements: (1) scheme to defraud, including proof of intent; (2)
money or property as object of scheme; (3) use of mails or wires
to further the scheme.”
City of New York v. Cyco.Net, Inc., 383
8
The defendants do argue that the individual Jarol plaintiffs
were not injured by a “pattern” of racketeering activity but
only by isolated transactions. (Defs.’ Mem. at 19.) This issue
concerns the adequacy of the pleading of injury and will be
addressed in Part III.C of this Opinion. However, the
defendants have not argued that the alleged fraudulent acts with
respect to all of the sellers as a whole, including those who
are not involved in this action, did not constitute a “pattern”
of wire fraud.
18
F. Supp. 2d 526, 552 (S.D.N.Y. 2005) (citing United States v.
Autuori, 212 F.3d 105, 115 (2d Cir. 2000); United States v.
Dinome, 86 F.3d 277, 283 (2d Cir. 1996)).
The plaintiffs have
stated a facially plausible claim in which defendants Russo and
Brady, through wire communications, allegedly made multiple
false representations with the intention to obtain money from
multiple property sellers in a deceptive manner; and their acts
allegedly spanned approximately three years, from 2009 to 2012.
(Am. Compl. ¶¶ 116, 151, 244); see Kalimantano, 939 F. Supp. 2d
at 404, 405 (fraudulent email advertisements sufficient for wire
fraud as RICO predicate acts); see also GICC Capital Corp. v.
Tech. Fin. Grp., Inc., 67 F.3d 463, 466-68 (2d Cir. 1995)
(discussing standard for determining whether there was a
“pattern” of racketeering activity).9
Therefore, the Amended
Complaint has made facially plausible allegations of wire fraud
as RICO predicate acts and a pattern of racketeering activity by
defendants Russo and Brady.
By contrast, the allegations against defendants Graham and
CA Partners are insufficient to support the assertion that each
of these defendants committed or aided and abetted at least two
9
As discussed above, the defendants have not specifically
challenged the sufficiency of the plaintiffs’ pleading of a
“pattern” of racketeering activity. Supra note 8. Therefore,
the Court need not decide whether the alleged acts of Brady and
Russo are an “open-ended” or “closed-ended” pattern of
racketeering activity. See GICC Capital Corp, 67 F.3d at 46667.
19
predicate acts.
With respect to defendant Graham, the
plaintiffs allege only that Graham made certain false
representations in a Fortune Magazine article and a Forbes.com
interview.10
(Am. Compl. ¶¶ 300-01, 324.)
The plaintiffs have
not alleged facts to show specifically that the statements were
materially false or that they were intended to induce potential
purchasers to use Concierge.
Therefore, the plaintiffs have
failed to state a claim under § 1962(c) against defendant
Graham.
With respect to defendant CA Partners, the plaintiffs seek
to hold CA Partners responsible for the acts of non-party
Roffers, who cannot currently be sued due to a pending
bankruptcy proceeding.
(Am. Compl. ¶ 2 n.2.)
CA Partners is
owned by Roffers’s wife (95%) and mother-in-law (5%) and
employed Roffers while he worked for Concierge as an
“independent contractor.”
(Am. Compl. ¶¶ 23-26.)
However, for
the § 1962(c) claim, there is only a single conclusory
10
The plaintiffs also allege that Concierge obtained the
business of the seller of a property in Cornwall-on-Hudson with
Graham’s misrepresentation that a recent auction by Concierge
was successful. (Am. Compl. ¶¶ 142-43.) However, there is no
allegation as to the approximate time and manner of
communication, or that wire communications were used to transmit
these misrepresentations in furtherance of the plan to defraud
the Cornwall-on-Hudson property owner. Therefore, these
allegations are insufficient to show an instance of wire fraud.
Similarly insufficient is the bare allegation that Graham asked
others to submit “stalking horse” bids, (Am. Compl. ¶ 230),
which alone does not satisfy the elements of wire fraud.
20
allegation that “Brady, Russo, Graham, and CA Partners operated
or otherwise managed Concierge through a pattern of racketeering
activity.” (Am. Compl. ¶ 411.)
The plaintiffs have failed to
identify any specific act of CA Partners committing wire fraud,
let alone establishing the commission of two or more predicate
acts.
Therefore, the plaintiffs have failed to state a
§ 1962(c) claim against CA Partners.
C.
Finally, plaintiffs bringing civil RICO claims must
demonstrate that they each suffered an injury proximately caused
by the defendants’ violation of § 1962.
18 U.S.C. § 1964(c);
Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 268 (1992).
In particular, “[w]here a RICO violation is predicated on acts
sounding in fraud, a plaintiff must allege that the defendant’s
acts were not only the ‘but for’ cause of plaintiff’s injury,
but the proximate cause as well, necessitating ‘some direct
relation between the injury asserted and the injurious conduct
alleged’; ‘[a] link that is too remote, purely contingent, or
indirect is insufficient.’”
Petrosurance, Inc. v. Nat’l Ass’n
of Ins. Comm’rs, 888 F. Supp. 2d 491, 503-04 (S.D.N.Y. 2012)
(quoting and citing Hemi Grp., LLC v. City of New York, 559 U.S.
1, 9 (2010)), aff’d, 514 F. App’x 51 (2d Cir. 2013).
Section 1964(c) provides a civil remedy only to those who
21
are injured “by reason of” violations of § 1962.
§ 1964(c).
18 U.S.C.
In Holmes, the Supreme Court explicitly rejected the
proposition that mere “but-for” causation would satisfy the
statutory requirement for recovery and held that the “by reason
of” language requires that the violation of § 1962 be the
“proximate cause” of the plaintiff’s injury.
at 265-68.
Holmes, 503 U.S.
The Holmes Court identified three policy
considerations in evaluating whether a plaintiff’s alleged harm
satisfies the “proximate cause” requirement for purposes of
civil RICO claims: (1) whether recognizing the plaintiffs’
claims would lead to a difficult task of “ascertain[ing] the
amount of a plaintiff’s damages attributable to the violation,
as distinct from other, independent, factors”; (2) whether
recognizing such claims “would force courts to adopt complicated
rules apportioning damages among plaintiffs removed at different
levels of injury from the violative acts, to obviate the risk of
multiple recoveries”; and (3) whether the “directly injured
victims” can “vindicate the law as private attorneys general,
without any of the problems attendant upon suits by plaintiffs
injured more remotely.”
Holmes, 503 U.S. at 269-70 (citations
omitted); see also Commercial Cleaning Servs., L.L.C. v. Colin
Serv. Sys., Inc., 271 F.3d 374, 381-82 (2d Cir. 2001).
In this case, the plaintiffs argue that Grand Estates was
injured because the defendants’ fraudulent acts gave Concierge
22
an unfair advantage in the competition for auction business.
(Pls.’ Mem. at 18.)
The plaintiffs rely on the decision of the
Second Circuit Court of Appeals in Commercial Cleaning, 271 F.3d
374.
In that case, the court considered the three Holmes
factors discussed above to evaluate whether a competitor’s RICO
claim satisfied the “proximate cause” requirement.
82 (citing Holmes, 503 U.S. at 269, 273).
Id. at 381-
The plaintiff and the
defendant were direct competitors in the laundry business, and
the defendant allegedly obtained an unfair advantage from hiring
hundreds of undocumented aliens at low wages.
Id. at 378-79.
The court reasoned that, because the plaintiff and the defendant
were direct competitors, damages were readily discoverable and
such damages did not apply to plaintiffs outside the category of
direct competitors, involving no complicated task of
ascertaining and apportioning damages.
Id. at 383.
Moreover,
actions by other parties, namely, governmental authorities
seeking to recover lost taxes and fees, would not address the
same type of harm that the defendant caused by hiring
undocumented aliens at low wages.
Id. at 385.
The Court of
Appeals noted: “There is no class of potential plaintiffs who
have been more directly injured by the alleged RICO conspiracy
than the defendant’s business competitors . . . .”
Id.
Therefore, the court found that the plaintiff’s claim satisfied
the “proximate cause” requirement.
23
Id. at 378.
This case presents a different scenario.
The plaintiffs
have conceded that Grand Estates could be injured only as the
result of the injury to the property sellers who were allegedly
defrauded.
26-27).
(Tr. of Oral Argument on Oct. 31, 2013 (“Tr.”) at
In other words, Grand Estates suffered only indirect
injury that was derivative of the injury to the property
sellers.
Grand Estates was injured only because the property
owners were allegedly deceived into using Concierge’s auction
services.
In addition, Grand Estates was not the sole
competitor of Concierge, even though the number of auction
houses in the business of luxury estate auctions may not be
large.
(Am. Compl. ¶ 48.)
Moreover, although the plaintiffs in
this case name multiple instances in which property sellers were
in touch with Grand Estates but eventually contracted with
Concierge, there could be many reasons for which those property
sellers did not choose Grand Estates, and there was no guarantee
that those who contracted with Concierge would otherwise have
chosen Grand Estates.
All of these factual distinctions make
the present case distinguishable from Commercial Cleaning.
The Supreme Court’s more recent decision in Anza v. Ideal
Steel Supply Corp., 547 U.S. 451 (2006), involved a factual
scenario more analogous to the present case.
In Anza, the
plaintiff alleged that the defendant defrauded the New York
State tax authority and thus gained an unfair advantage over the
24
plaintiff from being able to lower its prices.
Id. at 454.
The
Supreme Court, again applying the Holmes factors, found that the
plaintiff did not suffer an injury proximately caused by the
defendant’s acts.
Id. at 458-61.
The Court reasoned that
“[b]usinesses lose and gain customers for many reasons, and it
would require a complex assessment to establish what portion of
[the plaintiff’s] lost sales were the product of [the
defendant’s] decreased prices.”
Id. at 459.
Similarly, in this
case, because there was no assurance that property sellers would
have chosen Grand Estates had they not been allegedly defrauded
by the defendants, it is difficult to ascertain and apportion
the damage that Concierge’s allegedly unfair advantage caused
specifically to Grand Estates.
See Proven Methods Seminars, LLC
v. Am. Grants & Affordable Hous. Inst., LLC, No. Civ. S-0701588, 2008 WL 269080, at *6 (E.D. Cal. Jan. 29, 2008)
(dismissing the defendants’ RICO counterclaim for failure to
satisfy proximate cause requirement because “[t]here is simply
no basis upon which to assume that prospective consumers, absent
plaintiffs’ alleged scheme [of publishing false advertisements],
would have chosen defendants’ products and services as opposed
to one of the many alternatives”).
In addition, the third Holmes factor, that is, whether the
direct victims can be expected to sue, Holmes, 503 U.S. at 26970, also weighs against granting standing to Grand Estates.
25
In
Commercial Cleaning, the immediate victims of the depressed
wages that also allegedly injured the plaintiff were the
undocumented aliens hired by the defendant; however, it was not
realistic to expect these immediate victims to bring suit
against the defendant in order to remedy the harm caused by the
depressed wages.
See also Commercial Cleaning, 271 F.3d at 385
(noting that actions by governmental authorities recovering lost
taxes and fees would not redress the type of harm that caused
the plaintiff to lose profits).
By contrast, in Anza, the harm
to the plaintiff-competitor was derived from New York State’s
loss of tax revenues, and the State was the “immediate victim”
capable of vindicating the laws against the tax fraud by
pursuing the State’s own claim.
Anza, 547 U.S. at 460.
In the
present case, the plaintiffs concede that any injury to Grand
Estates was derived from the injuries to the property sellers
allegedly defrauded by the defendants.
(Tr. at 26-27.)
Any
defrauded seller is presumably capable of bringing suit on his
or her own: indeed, the individual plaintiffs in this case, the
Jarols, are property sellers bringing their own RICO claims
against the defendants.
The Bloesers also brought claims
against the defendants but have discontinued those claims.
Thus, it is unnecessary to find standing for Grand Estates in
order to redress the injuries caused by the defendants’ alleged
scheme of fraud.
26
Therefore, Grand Estates has failed to show that the
alleged RICO violations by the defendants were the proximate
cause of injury to Grand Estates or that standing for Grand
Estates is necessary to vindicate any sellers’ claims against
the defendants for the alleged fraudulent conduct.
Accordingly,
Grand Estates lacks standing to bring the § 1962(c) claim.
On the other hand, the Jarols’ claim plainly satisfies the
“proximate injury” requirement because the Jarols were direct
victims of the alleged fraud and have alleged direct injuries
for which the defendants’ alleged violations of § 1962(c) were
the proximate cause.
The Jarols’ claim also would not involve
any complicated determination and apportionment of damages: the
alleged damages to the Jarols were allegedly the loss of the
$100,000 break-up fee and the increased difficulty in selling
their house.
(Am. Compl. ¶¶ 208-09.)
The defendants argue that the Jarols have failed to allege
injury “by reason of a pattern of racketeering activity,”
because their claims involved only “isolated” transactions.
The
defendants also argue that the plaintiffs have failed to allege
the necessary continuity in the predicate acts directed at the
Jarols.
These arguments have no merit.
So long as a plaintiff
has adequately pleaded a “pattern of racketeering activity,” for
purposes of damages, the plaintiff need only allege that it has
suffered an injury from at least one or more of the predicate
27
acts comprising the RICO violation.
See Town of Kearny v.
Hudson Meadows Urban Renewal Corp., 829 F.2d 1263, 1268 (3d Cir.
1987); Marshall & Ilsley Trust Co. v. Pate, 819 F.2d 806, 809-10
(7th Cir. 1987); Chevron Corp. v. Donziger, 871 F. Supp. 2d 229,
253 (S.D.N.Y. 2012); see also Terminate Control Corp. v.
Horowitz, 28 F.3d 1335, 1347 (2d Cir. 1994) (stating that Kearny
and Marshall & Ilsley appear to be correct, but not so holding).
Hence, the Jarols have sufficiently alleged injury to proceed
with their § 1962(c) claim.
Because the plaintiffs have stated a claim arising under
§ 1962(c) against defendants Russo and Brady but failed to state
the claim against defendants Graham and CA Partners, the
defendants’ motion to dismiss Count III (RICO claim under
§ 1962(c)) is granted with respect to defendants Graham and CA
Partners, but is denied with respect to defendants Russo and
Brady.
In addition, because Grand Estates did not suffer an
injury proximately caused by a violation of § 1962(c), the
defendants’ motion to dismiss Count III is granted with respect
to the claim of plaintiff Grand Estates.
The sole remaining
claim under Count III is the § 1962(c) claim by the Jarols
against defendants Brady and Russo.
IV.
The plaintiffs also bring RICO claims arising under 18
28
U.S.C §§ 1962(a), (b), and (d) against all defendants.
Section
1962(a) provides that
[i]t shall be unlawful for any person who
has received any income . . . from a pattern
of racketeering activity . . . in which such
person has participated as a principal
. . . , to use or invest . . . any part of
such income, or the proceeds of such income,
in acquisition of any interest in, or the
establishment
or
operation
of,
any
enterprise which is engaged in, or the
activities of which affect, interstate or
foreign commerce.
18 U.S.C. § 1962(a).
To state a claim under § 1962(a), a
plaintiff must allege “(1) that the defendants used or invested
racketeering income to acquire or maintain an interest in the
alleged enterprise; and (2) that the plaintiffs suffered injury
as a result of that investment by the defendants.”
R.C.M. Exec.
Gallery Corp. v. Rols Capital Co., 901 F. Supp. 630, 642
(S.D.N.Y. 1995) (citation omitted).
Thus, there must be “injury
from the defendants’ investment of racketeering income in an
enterprise; it is not sufficient to allege injury only from the
predicate acts of racketeering.”
Id. (citing Ouaknine v.
MacFarlane, 897 F.2d 75, 82–83 (2d Cir. 1990)).
Similarly, § 1962(b) makes it “unlawful for any person
through a pattern of racketeering activity . . . to acquire or
maintain, directly or indirectly, any interest in or control of
any enterprise which is engaged in, or the activities of which
affect, interstate or foreign commerce.”
29
18 U.S.C. § 1962(b).
Stating a claim under § 1962(b) requires an allegation of “an
‘acquisition’ injury, analogous to the ‘use or investment
injury’ required under § 1962(a) . . . .”
Discon, Inc. v. NYNEX
Corp., 93 F.3d 1055, 1063 (2d Cir. 1996) (quoting Danielsen v.
Burnside-Ott Aviation Training Ctr., Inc., 941 F.2d 1220, 1231
(D.C. Cir. 1991)), vacated and remanded on other grounds, 525
U.S. 128 (1998).
The “enterprise” in §§ 1962(a) and (b) is not
necessarily the racketeering enterprise in § 1962(c), but refers
to an “entity purchased through moneys raised through
racketeering.”
USA Certified Merchants, LLC v. Koebel, 262 F.
Supp. 2d 319, 330-31 (S.D.N.Y. 2003).11
In this case, the plaintiffs allege that the defendants
used the income from their racketeering activity to pay Realogy
and SIR so that Realogy’s subsidiary, SIR, would continue to
refer business to Concierge under the Strategic Alliance
Agreement.
(Am. Compl. ¶¶ 381, 398.)
The plaintiffs also
allege that the defendants used their proceeds “to provide gifts
including vacations to real estate brokers with whom they were
seeking to do business.”
(Am. Compl. ¶¶ 382, 399.)
The
plaintiffs further allege that the defendants used the income to
11
It is unclear from the face of the Amended Complaint what the
alleged “enterprises” were--that is, enterprises in which the
defendants acquired or maintained an interest or control--for
purposes of the plaintiffs’ §§ 1962(a) and (b) claims. In any
event, as explained below, both claims fail because the
plaintiffs have failed to allege any injuries separate and
distinct from those caused by the RICO predicate acts.
30
pay CA Partners to employ Roffers.
(Am. Compl. ¶¶ 379, 396.)
However, none of the alleged injuries to the Jarols, the other
property sellers, or to Grand Estates12 were caused specifically
by the referral of Concierge by SIR or the real estate brokers,
or by the mere fact that Roffers was employed by CA Partners.
Instead, as the Amended Complaint indicates, these injuries were
all caused by the alleged misrepresentations by the defendants,
that is, the predicate acts of wire fraud.
¶¶ 150, 206, 272, 352.)
(E.g. Am. Compl.
Such allegations of injuries caused by
the predicate acts themselves are insufficient to state a claim
under §§ 1962(a) and (b).
See, e.g., Moses v. Martin, 360 F.
Supp. 2d 533, 544 (S.D.N.Y. 2004); Dornberger v. Metro. Life
Ins. Co., 961 F. Supp. 506, 527 (S.D.N.Y. 1997).
The plaintiffs further allege that defendants CA Partners,
Segue, and BHI used the racketeering income “to purchase the
interests in Concierge from Graham and Mattison.”
¶¶ 380, 397.)
(Am. Compl.
But the plaintiffs have failed to allege any
injury that was caused by this purchase of interests in
12
The defendants have argued that Grand Estates’s alleged injury
failed to satisfy the “proximate cause” requirement only in the
context of the § 1962(c) claim. (Defs.’ Mem. at 15-18.)
However, the “proximate cause” requirement is not specific to
§ 1962(c) but is rooted in the language of § 1964(c), which
creates the cause of action for all civil RICO claims. Holmes,
503 U.S. at 268. Therefore, Grand Estates’s §§ 1962(a) and (b)
claims should be dismissed because these claims, like Grand
Estates’s § 1962(c) claim, fail to satisfy the “proximate cause”
requirement. Supra Part III.C.
31
Concierge.
If the defendants simply invested the income derived
from a fraudulent scheme “in the same enterprise alleged to have
been the vehicle through which Defendants engaged in the
unlawful predicate act[s],” Koebel, 262 F. Supp. 2d at 331, the
acquisition or maintenance of interest in or control of the
enterprise could not have caused any injury that was separate
and distinct from the injury caused by the predicate acts; under
such circumstances, the plaintiff has no cause of action under
§§ 1962(a) and § 1962(b).
Koebel, 262 F. Supp. 2d at 331; see
also United States Fire Ins. Co. v. United Limousine Serv.,
Inc., 303 F. Supp. 2d 432, 449-50 (S.D.N.Y. 2004).
In this
case, because Concierge was allegedly the vehicle of the
defendants’ alleged racketeering activity, any purchase of
interest in Concierge, such as the purchase from Graham and
Mattison, could not have caused any harm that was separate and
distinct from the injury caused by the predicate acts.
Therefore, because the plaintiffs have not alleged any
injury separate and apart from the injury caused by these
predicate acts, the plaintiffs have failed to state a claim
under §§ 1962(a) and (b), and the defendants’ motion to dismiss
Counts I and II is granted.
Finally, § 1962(d) prohibits any conspiracy to violate
§§ 1962(a)-(c).
18 U.S.C. § 1962(d).
32
Other than one conclusory
allegation that the defendants “agreed” to commit the
violations, (Am. Compl. ¶ 418), the plaintiffs have alleged no
facts to show specifically that the defendants had any “meeting
of the minds” in the alleged violations.
“Threadbare recitals
of the elements of a cause of action, supported by mere
conclusory statements, do not suffice” to state a claim.
Iqbal,
556 U.S. at 678 (citing Twombly, 550 U.S. at 555); see also
United States Fire Ins. Co., 303 F. Supp. 2d at 453-54; Merrill
Lynch, Pierce, Fenner & Smith, Inc. v. Young, No. 91 Civ. 2923,
1994 WL 88129, at *30 (S.D.N.Y. Mar. 15, 1994) (“[N]umerous
district courts within this circuit have dismissed conclusory
allegations of agreement as insufficient to state a RICO
conspiracy claim.”) (citing cases); FD Prop. Holding, Inc. v.
U.S. Traffic Corp., 206 F. Supp. 2d 362, 373-74 (E.D.N.Y. 2002)
(finding a general allegation that “each of these defendants
agreed to commit each of the two or more predicate acts”
insufficient to state a claim for RICO conspiracy under
§ 1962(d)).
Nor can the plaintiffs establish conspiracy based on the
lone allegation that, “[a]s Concierge is a small company, the
[individual defendants] work interchangeably, with each of them
taking part in the control and direction of Concierge.”
Compl. ¶ 369; Pls.’ Mem at 23.)
(Am.
Such a general allegation about
the structure of the business is not sufficient to establish
33
that each defendant consciously agreed to commit the specific
predicate acts.
See Black Radio Network, Inc. v. NYNEX Corp.,
44 F. Supp. 2d 565, 581 (S.D.N.Y. 1999) (“To state a claim under
§ 1962(d) plaintiffs must allege facts that support a conclusion
that defendants consciously agreed to commit predicate acts.”).
Accordingly, the plaintiffs have failed to state a claim under
§ 1962(d), and the defendants’ motion to dismiss Count IV is
granted.
V.
The plaintiffs also bring claims under New York State law.
Although Grand Estates is dismissed as a plaintiff from the only
remaining federal law claim arising under 18 U.S.C. § 1962(c),
Grand Estates’s state law claims have a close relationship to
the § 1962(c) claim because they are based on the same alleged
acts constituting wire fraud.
Therefore, Grand Estates’s state
law claims “form part of the same case or controversy under
Article III of the United States Constitution.”
28 U.S.C.
§ 1367(a); see also Brazinski v. Amoco Petroleum Additives Co.,
6 F.3d 1176, 1181-82 (7th Cir. 1993) (upholding supplemental
jurisdiction in a case in which one of the plaintiffs had only a
state law claim that was closely related to the other
plaintiffs’ federal law claim).
None of the circumstances
listed under 28 U.S.C. § 1367(c) apply in this case to weigh
34
against the Court’s exercising supplemental jurisdiction.
Accordingly, the Court retains supplemental party jurisdiction
over the state law claims of Grand Estates.
VI.
The plaintiffs bring a claim for tortious interference
under New York State law, alleging both interference with
contract and interference with business relationships.
Compl. ¶ 433.)
(Am.
However, the plaintiffs’ Memorandum of Law fails
to address the argument of tortious interference with contract,
and that aspect of the claim is therefore abandoned, see, e.g.,
Price v. Cushman & Wakefield, Inc., 808 F. Supp. 2d 670, 704
n.19 (S.D.N.Y. 2011); Katz v. Image Innovations Holdings, Inc.,
542 F. Supp. 2d 269, 275 (S.D.N.Y. 2008), leaving only the claim
for tortious interference with business relationships.
Under New York law, to establish a claim for tortious
interference with a business relationship, “a party must prove
1) that it had a business relationship with a third party;
2) that the defendant knew of that relationship and
intentionally interfered with it; 3) that the defendant acted
solely out of malice or used improper or illegal means that
amounted to a crime or independent tort; and 4) that the
defendant’s interference caused injury to the relationship with
the third party.”
Amaranth LLC v. J.P. Morgan Chase & Co., 888
35
N.Y.S.2d 489, 494 (App. Div. 2009).
In this case, the plaintiffs point to several instances in
which potential sellers had a contact with Grand Estates but
eventually contracted with Concierge after being offered false
information by Concierge.
(Pls.’ Mem. at 25-27.)
However, even
if those allegations were sufficient to show the existence of
business relationships, the plaintiffs have not alleged any fact
showing that the defendants knew of the sellers’ relationships
with Grand Estates--much less that the defendants intentionally
interfered with such relationships.
The plaintiffs argue that the defendants’ knowledge of
these relationships can be “inferred,” (Tr. at 35), because the
defendants were aware that they were in competition with other
auction houses including Grand Estates, and that “in
misrepresenting their success[, the defendants] would deprive
[Grand Estates] and other legitimate auction companies of
business.”
(Pls.’ Mem. at 26.)
However, it is clear that, in
order to state a claim for tortious interference, there must be
a particular business relationship between the plaintiff and the
third party, that defendants must have actual knowledge of that
specific relationship, and that the interference must be
intentional, not negligent.
See Balance Point Divorce Funding,
LLC v. Scrantom, --- F. Supp. 2d ---, No. 13 Civ. 1049, 2013 WL
5718456, at *7 (S.D.N.Y. Oct. 21, 2013), as corrected (Oct. 31,
36
2013) (“To bring a claim of tortious interference with business
relations, . . . [t]he allegation that the defendant had actual
knowledge of the relationship in issue is an essential element
of the claim.”
(Citations omitted)); see also 800America, Inc.
v. Control Commerce, Inc., 202 F. Supp. 2d 288, 290 (S.D.N.Y.
2002); Yong Ki Hong v. KBS Am., Inc., --- F. Supp. 2d ---, No.
05 Civ. 1177, 2013 WL 5366388, at *15 (E.D.N.Y. Sept. 24, 2013)
(“A generalized allegation . . . will not pass muster;
plaintiffs must show that defendants had actual knowledge of the
specific business relationships with which they allegedly
interfered.”).
Therefore, because the Amended Complaint fails
to provide any factual allegations that the defendants had
actual knowledge of any specific business relationships between
Grand Estates and a potential seller or that the defendants
intentionally interfered with that business relationship, the
plaintiffs have failed to state a claim for tortious
interference with a business relationship.
See Sedona Corp. v.
Ladenburg Thalmann & Co., No. 03 Civ. 3120, 2009 WL 1492196, at
*9 (S.D.N.Y. May 27, 2009) (dismissing the tortious interference
claim because the complaint failed to “allege that Defendants
knew about the specific business relationships identified in the
[complaint]”).
Accordingly, the defendants’ motion to dismiss
Count VI is granted.
37
VII.
The plaintiffs bring two claims under New York General
Business Law §§ 349 and 350.
Section 349 prohibits “[d]eceptive
acts or practices in the conduct of any business, trade or
commerce or in the furnishing of any service in this state.”
N.Y. Gen. Bus. Law § 349(a).
Section 350 prohibits “[f]alse
advertising in the conduct of any business, trade or commerce or
in the furnishing of any service in this state.”
Id. § 350.
For a claim under Section 349 or Section 350, “a plaintiff must
allege that a defendant has engaged in (1) consumer-oriented
conduct that is (2) materially misleading and that (3) plaintiff
suffered injury as a result of the allegedly deceptive act or
practice.”
City of New York v. Smokes-Spirits.Com, Inc., 911
N.E.2d 834, 838 (N.Y. 2009); see also Koch v. Acker, Merrall &
Condit Co., 967 N.E.2d 675, 675 (N.Y. 2012).
In addition, Sections 349 and 350 contain a
“territoriality” requirement: to state a claim under either
provision, the deception of consumers must occur in New York.
Goshen v. Mut. Life Ins. Co. of N.Y., 774 N.E.2d 1190, 1194-96
(N.Y. 2002); Cruz, 720 F.3d at 124 (applying the territoriality
requirement to both § 349 and § 350).
The New York Court of
Appeals explained in Goshen that “[t]he reference in section
349(a) to deceptive practices in ‘the conduct of any business,
trade or commerce or in the furnishing of any service in this
38
state’ (emphasis added) unambiguously evinces a legislative
intent to address commercial misconduct occurring within New
York.”
Id.
Similarly, Section 350 contains a parallel language
prohibiting “[f]alse advertising in the conduct of any business,
trade or commerce or in the furnishing of any service in this
state,” N.Y. Gen. Bus. Law § 350 (emphasis added), and “[t]he
standard for recovery under . . . § 350, while specific to false
advertising, is otherwise identical to section 349,” Goshen, 774
N.E.2d at 1195 n.1.
Therefore, Section 350 has the same
territorial requirement as Section 349, requiring deception in
New York.
See id. at 1196; Berkman v. Robert’s Am. Gourmet
Food, Inc., 841 N.Y.S.2d 825, 2007 WL 1815990, at *5 (Sup. Ct.
2007); see also Cruz, 720 F.3d at 124; Leider v. Ralfe, 387 F.
Supp. 2d 283, 292 (S.D.N.Y. 2005).
Thus, to state a claim under
either Section 349 or Section 350, the plaintiffs must show, at
the very least, that the deceptive transaction occurred in New
York in order to satisfy the territorial requirement.
Cruz, 720
F.3d at 123-24.
With respect to the Jarols’ claims, the plaintiffs argue
that the territorial requirement is satisfied based on the fact
that Concierge’s contract with the Jarols contains a choice-oflaw provision and a forum-selection clause requiring that any
dispute relating to the contract be resolved in courts located
in New York and under New York law.
39
(Wolf Decl. Ex. C ¶ 17.)
However, even though choice-of-law and forum-selection
provisions may be indicative of a transaction in New York when
other factors are present, see Cruz, 720 F.3d at 123-24, the
mere fact that parties agreed to be bound by New York law and to
resolve their disputes in courts in New York does not, in
itself, provide any indication as to where a transaction
occurred.
There are no allegations in the Amended Complaint
showing that the underlying transaction between Concierge and
the Jarols occurred in New York.
Indeed, the plaintiffs
themselves have conceded that the Jarols were not injured in New
York.
(Tr. at 33.)
Nevertheless, the plaintiffs argue that the Jarols, who
were selling a property in Illinois, were “injured as a result
of dissemination of information from New York.”
Pls.’ Mem. at 24.)
(Tr. at 33;
In Goshen, the New York Court of Appeals
rejected precisely this type of allegation as insufficient to
satisfy the territoriality requirement, holding that “‘hatching
a scheme’ or originating a marketing campaign in New York in and
of itself” does not constitute an actionable deceptive act in
New York State, Goshen, 774 N.E.2d at 1195; instead, “the
transaction in which the consumer is deceived must occur in New
York.”
Id.
Therefore, the GBL §§ 349 and 350 claims of the
Jarols must be dismissed.
Moreover, the GBL claims of both the Jarols and Grand
40
Estates fail because the plaintiffs have not alleged facts to
show that Concierge’s conduct was “consumer-oriented,” which is
a required element of the GBL claims.13
Koch, 967 N.E.2d at 675.
Courts in New York have held repeatedly that a “‘single shot
transaction’ involving complex arrangements, knowledgeable and
experienced parties and large sums of money” is not a “consumeroriented” transaction for purposes of GBL claims.
Genesco
Entm’t v. Koch, 593 F. Supp. 743, 752 (S.D.N.Y. 1984) (Weinfeld,
J.); accord Oswego Laborers’ Local 214 Pension Fund v. Marine
Midland Bank, N.A., 647 N.E.2d 741, 744-45 (N.Y. 1995); 904
13
The defendants argue that Grand Estates cannot bring claims
under Sections 349 and 350 because it did not suffer any direct
injury. (Defs.’ Mem. at 25.) However, New York law permits a
competitor to sue under Sections 349 and 350 if the alleged
deceptive acts result in consumer injury and affect the public
interest in New York. N. State Autobahn, Inc. v. Progressive
Ins. Grp. Co., 953 N.Y.S.2d 96, 106 (App. Div. 2012) (affirming
a competitor’s standing under Sections 349 and 350); see also
Securitron Magnalock Corp. v. Schnabolk, 65 F.3d 256, 264 (2d
Cir. 1995). Nevertheless, courts routinely reject a
competitor’s Sections 349 and 350 claims if “the gravamen of the
complaint is . . . harm to plaintiff’s business” rather than
harm to the public interest in New York at large. Emergency
Enclosures, Inc. v. Nat’l Fire Adjustment Co., 893 N.Y.S.2d 414,
417-18 (App. Div. 2009) (citations omitted); see also Gucci Am.,
Inc. v. Duty Free Apparel, Ltd., 277 F. Supp. 2d 269, 273-74
(S.D.N.Y. 2003) (collecting cases). The gravamen of Grand
Estates’s GBL claims in this case is precisely limited to the
alleged damage to Grand Estates’s business: Grand Estates claims
injury by Concierge’s alleged false advertisements and deceptive
trade practices because these tactics allegedly gave Concierge
an unfair advantage in its competition with Grand Estates. (Am.
Compl. ¶¶ 427, 443.) In any event, as explained below, the GBL
claims of Grand Estates fail in the absence of allegations that
Concierge engaged in “consumer-oriented” conduct that affected
public interest at large.
41
Tower Apartment LLC v. Mark Hotel LLC, 853 F. Supp. 2d 386, 399
(S.D.N.Y. 2012); Exxonmobil Inter-Am., Inc. v. Advanced Info.
Eng’g Servs., Inc., 328 F. Supp. 2d 443, 449 (S.D.N.Y. 2004).
Courts evaluating whether a conduct is “consumer-oriented” have
generally focused on several factors, namely, “(i) the amounts
at stake, (ii) the nature of the contracts at issue, and (iii)
the sophistication of the parties.”
Fleisher v. Phoenix Life
Ins. Co., 858 F. Supp. 2d 290, 304 (S.D.N.Y. 2012) (citations
omitted).
“None of these factors alone is dispositive.
Rather,
these considerations as a whole are intended to ascertain
whether the disputed acts or practices have a broader impact on
consumers at large.”
Id. (internal citations and quotation
marks omitted).
In particular, “contracts that are not ‘standard-issue,’
but are instead designed to provide services ‘tailored to meet
the [plaintiff’s] wishes and requirements’ are not consumeroriented for § 349 purposes.”
Exxonmobil, 328 F. Supp. 2d at
449 (alteration in original) (quoting N.Y. Univ. v. Continental
Ins. Co., 662 N.E.2d 763, 770 (N.Y. 1995)).
Instead, “[t]he
typical violation contemplated by the statute involves an
individual consumer who falls victim to misrepresentations made
by a seller of consumer goods usually by way of false and
misleading advertising.”
Genesco, 593 F. Supp. at 751; accord
Teller v. Bill Hayes, Ltd., 630 N.Y.S.2d 769, 773 (App. Div.
42
1995).
In this case, auctions of luxury real properties, which
were valued at millions of dollars, involved complex
arrangements between sophisticated parties and with tens of
thousands of dollars in marketing costs alone.
As alleged in
the Amended Complaint, each contract was entered into only after
an elaborate process of pitching by the auctioneer and
individualized negotiations between the auctioneer and the
seller, which are wholly unlike the unsophisticated, day-to-day
consumer transactions in the sales of consumer products and
services.
(See, e.g., Am. Compl. ¶¶ 77-82, 116-31, 151-88).
Therefore, because of the large amounts of money involved in
these complex transactions, and because these transactions
provided services “tailored” to meet the sellers’ individualized
requirements, Exxonmobil, 328 F. Supp. 2d at 449, these
contracts cannot be deemed as “consumer-oriented.”
See 904
Tower Apartment, 853 F. Supp. 2d at 390, 399-400 (granting
motion to dismiss and holding that a $ 10 million transaction
involving the sale of two luxury apartments “is too unlike a
typical consumer violation to be covered under the statute”).14
14
The fact that the plaintiffs alleged multiple instances of
similar transactions is of no consequence. It is the nature of
the underlying transactions that matters in the determination of
whether a type of transactions is “consumer-oriented.” A
transaction does not become “consumer-oriented” simply because
the same defendant has done a similar type of business with
43
Therefore, the plaintiffs have failed to allege facts to
show that the luxury real estate transactions in this case are
the type of “consumer-oriented” transactions affecting consumers
at large and thus cannot state a claim under Sections 349 and
350.
Additionally, the GBL claims of the Jarols fail because
the claims failed to satisfy the territoriality requirement.
Accordingly, the defendants’ motion to dismiss Counts V and VII
is granted.15
multiple clients; otherwise, any business transaction could
become “consumer-oriented,” including those that have been held
not to be so, such as selling luxury real estate. See 904 Tower
Apartment, 853 F. Supp. 2d at 390.
15
The defendants dispute personal jurisdiction over defendants
CA Partners, Segue, and BHI. Because no claim remains against
these defendants, it is unnecessary to reach that issue.
44
CONCLUSION
The Court has considered all of the arguments of the
parties.
To the extent not specifically addressed above, the
remaining arguments are either moot or without merit.
For the
foregoing reasons, the defendants’ motion to dismiss is granted
except with respect to the claim under § 1962(c) by plaintiffs
Deborah Jarol and Sherwin Jarol against defendants Brady and
Russo, as to which the motion to dismiss is denied.
The Clerk
is directed to close Docket No. 10.
SO ORDERED.
Dated:
New York, New York
March 10, 2014
____________/s/_____________
John G. Koeltl
United States District Judge
45
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