United States of America ex rel Leonard A. Pelullo et al v. American International Group, Inc. et al

Filing 79

OPINION & ORDER re: 63 MOTION to Dismiss the Second Amended Complaint filed by Maurice "Hank" Greenberg, Starr International Co, Inc., C.V. Starr & Co., Inc., Howard I. Smith, 67 MOTION to Dismiss the Second Am ended Complaint filed by American International Group, Inc., 70 MOTION to Dismiss the Second Amended Complaint filed by Mel Harris. For the reasons set forth above, defendants' motions to dismiss are GRANTED, and the Second Amended Complaint is dismissed with prejudice. The Clerk of Court is directed to close the motions at ECF Nos. 63, 67, and 70. (Signed by Judge Katherine B. Forrest on 8/21/2017) (mro)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
UNITED STATES OF AMERICA and the STATE :
OF NEW YORK ex rel. LEONARD A. PELULLO, :
:
Plaintiff,
:
:
-v:
:
AMERICAN INTERNATIONAL GROUP, INC.,
:
:
STARR INTERNATIONAL CO., INC., C.V.
:
STARR & CO., INC., MAURICE “HANK”
GREENBERG, HOWARD I. SMITH, AND MEL :
HARRIS,
:
:
Defendant.
:
:
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KATHERINE B. FORREST, District Judge:

USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: August 21, 2017

16-cv-5694 (KBF)
OPINION & ORDER

Before the Court are motions to dismiss filed by defendants American
International Group, Inc. (“AIG”) (ECF No. 67), Mel Harris (ECF No. 70), C.V. Starr &
Co., Inc., Starr International Co., Inc., Maurice “Hank” Greenberg, and Howard I.
Smith (ECF No. 63). For the reasons set forth below, the Court finds that this lawsuit
is an entirely frivolous qui tam action with no basis in fact or law; accordingly, the
motion to dismiss is GRANTED.

I.

BACKGROUND
In his complaint, relator, Leonard A. Pelullo, weaves together a variety of

baseless and disjointed allegations under the False Claims Act (“FCA”) and
securities laws. (See ECF No. 27.) Taken together, relator seems to allege that,
based on misconduct that occurred several decades ago, defendants made false
claims to the government, violating the federal FCA, the state FCA, and federal

securities regulations, and causing the 2008 financial crisis. Stated briefly, relator
alleges that AIG was “infiltrate[ed] . . . by Organized Crime for more than twentyfive years” with the consent of defendant Maurice “Hank” Greenberg, AIG’s former
Chairman and CEO. (Second Amended Complaint (“SAC”), ECF No. 27, ¶ 8.) He
claims that defendants and their conspirators allowed this “infiltration,”
underwrote insurance policies for entities controlled by the Mafia, manipulated
AIG’s books to conceal these transactions, concealed losses, filed false and
misleading reports and financial statements with the SEC, withheld information
during the negotiations that culminated in AIG’s 2006 settlement with the
government, misrepresented AIG’s financials in connection with a 2009 stock
purchase agreement, and filed a lawsuit “designed to fraudulently obtain money
from the Federal Reserve Bank and the United States.” (Id. ¶ 12.) Incredibly,
relator further alleges that the 2008 AIG bailout would never have happened had
the government known about AIG’s purported connections to organized crime and
that this action’s purpose is to “accomplish what should have taken place in 2008:
the takeover and breakup of AIG by the federal government and the defendant’s
payment to the federal government and the State of New York of the full extent of
damages that they have caused through their years of misdeeds.” (Id.)
The federal and New York State governments declined to intervene in this
qui tam action. (ECF No. 28-29.) All defendants filed motions to dismiss pursuant
to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). (ECF Nos. 63, 67, 71.)

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II.

LEGAL PRINCIPLES 1
The FCA “imposes civil liability upon ‘[a]ny person’ who, inter alia,

‘knowingly presents, or causes to be presented, to an officer or employee of the
United States Government . . . a false or fraudulent claim for payment or approval.’”
Vt. Agency of Nat. Res. v. U.S. ex rel. Stevens, 529 U.S. 765, 769 (2000) (quoting 31
U.S.C. § 3729(a)). 2 It also allows suits for “reverse false claims,” where the
defendant “knowingly makes, uses, or causes to be made or used, a false record or
statement to conceal, avoid, or decrease an obligation to pay or transmit money or
property to the Government.” U.S. ex rel. Taylor v. Gabelli, 345 F. Supp. 2d 313,
327 (S.D.N.Y. 2004) (quoting 31 U.S.C. § 3729(a)(7)); see also United States v.
Raymond & Whitcomb Co., 53 F. Supp. 2d 436, 444 (S.D.N.Y. 1999) (“While a
typical False Claims Act action alleges an excessive payment from the United
States to the defendant, the statute also supports a ‘reverse false claim’ action
alleging an insufficient payment to the United States from the defendant.”) While
these claims are cognizable under certain circumstances, relator here has failed to
sufficiently allege “(1) that the defendant[s] made, used, or caused to be used a
To survive a Rule 12(b)(6) motion to dismiss, a complaint must allege “enough facts to state a claim
to relief that is plausible on its face.” Starr v. Sony BMG Music Entm't, 592 F.3d 314, 321 (2d Cir.
2010) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see also Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (same). “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.” Iqbal, 556 U.S. at 678. In applying that standard, the court accepts as true all well-plead
factual allegations, but does not credit “mere conclusory statements” or “threadbare recitals of the
elements of a cause of action.” Id.
1

“In a qui tam action under the FCA, the plaintiff sues on behalf of and in the name of the
government and invokes the standing of the government resulting from the fraud injury.” United
States ex rel. Kreindler & Kreindler v. United Techs. Corp., 985 F.2d 1148, 1154 (2d Cir. 1993). “The
qui tam plaintiff has the requisite personal stake in the outcome of the case to assure ‘that concrete
adverseness which sharpens the presentation of issues upon which the court so largely depends.’” Id.
(quoting Baker v. Carr, 369 U.S. 186, 204 (1962)).
2

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record or statement to conceal, avoid, or decrease an obligation to the United States;
(2) that the statement or record was false; (3) that the defendant[s] knew that the
statement or record was false; and (4) that the United States suffered damages as a
result.” Raymond & Whitcomb Co., 54 F. Supp. 2d at 444-45 (quoting Wilkins ex
rel. United States v. Ohio, 885 F. Supp. 1055, 1059 (S.D. Ohio 1995)).
In order to state a claim for fraud, under Rule 9(b), “[a]t a bare minimum,
plaintiffs must state who said what to whom, and when and where they said it.
Shadowy and suggestive gossip-column-style innuendos do not suffice. Further, the
complaint must allege that the defendant intended to defraud, or at least allege
facts creating an inference of fraudulent intent.” Kolbeck v. LIT Am., Inc., 923 F.
Supp. 557, 568 (S.D.N.Y. 1996), aff’d, 152 F.3d 918 (2d Cir. 1998) (citing Shields v.
Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994)); see also Fed. R. Civ. P.
9(b); id. (“Rule 9(b) applies with equal force to all claims of fraud—whether they
arise under state law, the CEA, or other federal law.” (citing Karasyk v. Marc
Commodities Corp., 770 F. Supp. 824, 829 (S.D.N.Y. 1991)).
III.

ANALYSIS
Each of relator’s claims fails for lack of standing or for failing to state a valid

claim under the FCA. And even if that were not the case, plaintiff’s claims would be
time-barred.
With regard to the mafia-related conduct, which apparently underlies the
ostensible false claims, relator fails to demonstrate any basis in fact for his
assertions. He alleges vaguely that, while in prison with “leading figures in New
York Organized Crime families,” he learned of AIG’s “connection to Organized
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Crime.” (ECF No. 74 at 1.) Relator names no sources, and at no point does he plead
facts to support the truth of the Mafia-related misconduct—he does not name a
single “union[], construction compan[y], [or] construction-related service compan[y]”
(ECF 27 at 30) that was allegedly under the Mafia’s control as a part of this scheme.
This is simply not enough to give rise to plausible misconduct.
Relator contends that, by failing to disclose this misconduct, defendants are
liable under the FCA and federal securities regulations. But not once does relator
sufficiently state a claim under these laws. He alleges both traditional and reverse
false claims, but does not recount any specific false statement to secure a “payment”
or to avoid an existing “obligation.” (See Kolbeck, 923 F. Supp. at 568.) (For
example, the 2006 settlement was and is not an “obligation” under the statute. See
31 U.S.C. § 3729(b)(3) (“[T]he term ‘obligation’ means an established duty, whether
or not fixed, arising from an express or implied contractual, grantor-grantee, or
licensor-licensee relationship, from a fee-based or similar relationship, from statute
or regulation, or from the retention of any overpayment.”).) Count 3, for instance,
which alleges a traditional false claim arising from TARP funding, is nothing more
than conclusory, as is the wildly unfounded assumption that the government would
not have entered into the 2006 settlement had it known about AIG’s alleged Mafia
connections. Allegations only that AIG failed to disclose “serious misconduct,”
without a demonstration that misconduct was at least plausible or an identification
of one specific false claim that was made to the government, cannot survive a
motion to dismiss.

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Additionally, Counts 6, 8, and 9 focus on violations of federal securities
regulations. Relator has no standing to bring these claims. Not one of the
regulations named in the complaint allows for a private citizen to sue for
enforcement on behalf of the United States. And relator does not otherwise have
plausible standing; in other words, he has not sufficiently alleged a cognizable
injury that would or could be redressed through this lawsuit.
Furthermore, even if relator did have standing, and even if he had
sufficiently stated claims, the claims are time-barred. The federal FCA claims are
subject to a six-year statute of limitations, 31 U.S.C. § 3731(b)(1), and the state FCA
claims are subject to a ten-year statute of limitations, N.Y. State Fin. Law § 192(1).
None of the FCA-related allegations focus on conduct that occurred within the
statute of limitations; relator attempts to conjure up more recent dates in an effort
to retrigger the limitations period, but he cannot circumvent the statutes in this
way. It is not the case, as relator alleges, that every time AIG failed to disclose the
alleged fraud, a new limitations period began. Relator’s securities claims are also
time-barred—federal statute imposes a five-year statute of limitations, 28 U.S.C. §
2462, and the securities-related misconduct is alleged to have occurred in the 1980s
and 1990s.

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IV.

CONCLUSION
For the reasons set forth above, defendants’ motions to dismiss are

GRANTED, and the Second Amended Complaint is dismissed with prejudice. The
Clerk of Court is directed to close the motions at ECF Nos. 63, 67, and 70.
SO ORDERED.
Dated:

New York, New York
August 21, 2017

_________________________________________
KATHERINE B. FORREST
United States District Judge

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