Duval v. Albano et al
Filing
40
OPINION AND ORDER: on re: 33 MOTION to Dismiss the complaint, filed by Debra Albano, Axis Sports Media, Inc., Joseph Albano. As a policy matter, the Court sympathizes with the frustration evident in Defendants' briefing. Inde ed, there is no question that RICO's private right of action, in conjunction with the statute's inclusion of mail and wire fraud (for which there is no independent private right of action) as racketeering acts, creates federal treble da mage actions out of business disputes that would otherwise never be in federal court. However, the Supreme Court long ago observed that "this defect if defect it is is inherent in the statute as written, and its correction must lie with Con gress." Fresh Meadow Food Servs., LLC v. RB 175 Corp., 282 F. App'x 94, 100 (2d Cir. 2008) (summary order) (quoting Sedima S.P.R.L. v. Imrex Co., 473 U.S. 479, 499 (1985)). For all of the reasons outlined above, Plaintiff's Complaint passes muster. Accordingly, Defendants' motion to dismiss is DENIED, and the Clerk of Court is directed to terminate the motion at docket entry 33. The parties are directed to file a joint status letter and proposed case management plan that comply with the requirements outlined in the Courts Notice of the Initial Pretrial Conference (Dkt. #13) on or before August 9, 2017. The parties are forewarned that the Court will be disinclined to extend discovery deadlines, once those deadlines are proposed by the parties and endorsed by the Court, and as further set forth in this order. (Signed by Judge Katherine Polk Failla on 7/18/2017) (ap)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------------------------X
:
LESLEY DUVAL,
:
:
:
Plaintiff,
:
v.
:
:
JOSEPH ALBANO, also known as J.D. Albano, :
DEBRA ALBANO, and AXIS SPORTS MEDIA, :
INC.,
:
:
Defendants.
:
:
--------------------------------------------------------- X
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: July 18, 2017
______________
16 Civ. 7810 (KPF)
OPINION AND ORDER
KATHERINE POLK FAILLA, District Judge:
After a deal to sell her business went awry, Plaintiff Lesley Duval brought
this action against Joseph and Debra Albano (together, the “Albanos”) and a
company they controlled, Axis Sports Media, Inc. (“AXIS,” and with the
Albanos, “Defendants”). Plaintiff advanced civil claims under 18 U.S.C. § 1962,
the Racketeer Influenced and Corrupt Organizations Act (commonly known as
“RICO”), as well as common-law claims for breach of contract, anticipatory
breach of contract, fraud, unjust enrichment, and declaratory judgment. In
brief, Plaintiff alleges that the Albanos operated a network of associated shell
corporations (including AXIS) for the purpose of defrauding businesses and
consumers alike, and that Plaintiff herself was defrauded into selling them The
Manhattan Cocktail Classic (“MCC”), a business Plaintiff had founded.
Defendants moved to dismiss the Complaint on January 23, 2017, and
their motion was fully briefed as of March 24, 2017. For the reasons that
follow, Defendants’ motion is denied.
BACKGROUND 1
A.
Factual Background
1.
The Sale of MCC
Plaintiff is the founder and former owner of Lesley Townsend LLC, doing
business as MCC, an event production company that produced “high-end
liquor and cocktail events, including its eponymous annual gala event” that
was held in New York City every year from 2009 to 2014. (Compl. ¶ 16).
In or about March of 2014, Joseph Albano approached Plaintiff “with a
proposal to purchase MCC.” (Compl. ¶ 17). “Mr. Albano represented himself at
the time as an experienced event production executive with an extensive
history of buying and selling brands and companies.” (Id.).
On September 9, 2014, Plaintiff entered into a purchase agreement (the
“Purchase Agreement”) “with The Cocktail Classic LLC (‘Buyer LLC’), a shell
company formed by the Albano Defendants for the sole purpose of purchasing
MCC from [Plaintiff].” (Compl. ¶ 18). “Under the terms of the Purchase
1
In resolving Defendants’ Motion, the Court has considered the facts as pleaded in
Plaintiff’s Complaint. (“Compl.” (Dkt. #1)). The Court has taken all well-pleaded
allegations as true, as it must at this stage. See, e.g., Vega v. Hempstead Union Free
Sch. Dist., 801 F.3d 72, 78 (2d Cir. 2015). The Court has also reviewed the briefing
submitted by the parties and will refer to it as follows: Defendants’ memorandum of
law in support of their motion to dismiss will be referred to as “Def. Br.” (Dkt. #34).
Plaintiff’s memorandum of law in opposition to Defendants’ motion will be referred to as
“Pl. Br.” (Dkt. #35). Defendants’ reply memorandum of law in further support of their
motion will be referred to as “Def. Reply.” (Dkt. #37).
2
Agreement, the Buyer LLC agreed to purchase [Plaintiff’s] entire membership
interest in MCC for a total purchase price of $908,000 (‘Purchase Price’), to be
paid in quarterly installments of $37,500 over a period of six years.” (Id. (citing
Compl., Ex. A, §§ I-II)).
AXIS was a New York corporation formed by Debra Albano in 2012.
(Compl. ¶ 37 & Ex. G). According to Plaintiff, it was used by the Albanos to
impart a patina of legitimacy to the transaction: “As part of the transaction to
transfer ownership of MCC from [Plaintiff] to the Buyer LLC ... , [Joseph]
Albano proposed that AXIS would guaranty payment of the Purchase Price to
[Plaintiff].” (Id. at ¶ 19). “The Guaranty Agreement was, by its own terms, ‘an
unconditional guaranty of payment.’” (Id. (citing Compl., Ex. B, ¶ 2)). It
provided that “[t]o induce the Seller to enter into the Purchase Agreement,”
AXIS, the Guarantor, “absolutely, conditionally and irrevocably guarantee[d] to
[Plaintiff,] the Seller[,] ... the due and punctual payment, observance,
performance and discharge of” the Purchase Price. (Compl., Ex. B, ¶ 1). Of
particular significance to the instant litigation, AXIS “represent[ed] and
warrant[ed] that ... [it] ha[d] the financial capacity to pay and perform its
obligations” under the agreement. (Id. at ¶ 6).
Joseph Albano signed the Guaranty Agreement on behalf of AXIS as its
President. (Compl. ¶ 21; see also id., Ex. B). He also “represented to [Plaintiff]
that he intended to rely upon AXIS’s event production experience to continue
producing the MCC festival successfully ... in order to induce [Plaintiff] to enter
3
into the MCC [sale transaction] and to gain control of the valuable MCC brand.”
(Id. at ¶ 22).
In reliance on these representations, Plaintiff “transferred all interest in
MCC to the Buyer LLC” on September 9, 2014. (Compl. ¶ 23; see also id. at
¶ 18). An initial payment of $45,000 was paid with a check signed by Debra
Albano “from a corporate entity named ‘WSOG LLC.’” (Id. at ¶ 23). 2 “On
December 15, 2014, the Buyer LLC made a quarterly payment to [Plaintiff] in
the amount of $37,500,” also using a check signed by Debra Albano. (Id.; see
also Compl., Ex. C).
After that, no further payments were made. To date, the Buyer LLC has
not made any additional quarterly payment as required under the Purchase
Agreement, and AXIS has “defaulted on its obligation under the Guaranty
Agreement to guaranty payment by the Buyer LLC.” (Compl. ¶ 26). The MCC
festival has not been produced since MCC was purchased. (Id. at ¶¶ 28, 31).
Instead, Joseph Albano “has made repeated representations regarding attempts
to re-sell the company to third-party buyers” (id. at ¶ 28), and “indicated on at
least two occasions that he [did] not have the funds to satisfy his companies’
obligations and ... intend[ed] to default on the future quarterly obligations” (id.
at ¶ 30).
2
The Court understands “WSOG” to be shorthand for “World Series of Golf.”
4
2.
The Albanos’ Additional Alleged Misrepresentations
a.
AXIS
According to Plaintiff, the failed MCC transaction was the proverbial tip
of the iceberg of Defendants’ fraudulent conduct: She alleges that “[b]eginning
at least as early as 2013, and continuing through [the filing of the Complaint],
the Albano Defendants have made numerous false statements on the AXIS
website,” including “misrepresentations about AXIS’s size as an organization,
office location, history of operations, clients roster, and events produced.”
(Compl. ¶ 70). The AXIS website indicates that the company has been helping
its clients “to achieve their objectives by using sports as a winning
communication tool” for over fifteen years. (Id. at ¶ 32; see also id., Ex. D).
Indeed, the website lists as AXIS’s clients and partners Miller Lite, Citibank,
Red Bull, the Pro Football Hall of Fame, Patrón Tequila, Tiffany & Co., Lowe’s,
and American Airlines. (Id. at ¶ 32; see also id., Ex. D). The website also
indicates that AXIS has a “creative and production team of professionals” that
includes “graphic designers, producers, technical product managers, script
writers, videographers, video editors, video and audio engineers, lighting
directors, creative directors, and set designers with ‘decades of knowledge and
experience.’” (Id. at ¶ 32; see also id., Ex. E). And AXIS issued a September 3,
2014 press release announcing its production of a year-long Professional
Boxing Tour, the first event of which was to be a prize fight at Mohegan Sun
Arena in October 2014. (Id. at ¶ 33; see also id., Ex. F).
5
Plaintiff contends that, in reality, “AXIS is shell company with no assets
and ... no employees or clients.” (Compl. ¶ 33). The company could not have
been in business for over fifteen years because “the entity was only created in
2012.” (Id.). The October 2014 prize fight at Mohegan Sun is not listed in the
public professional records of the boxers alleged to have participated in it. (Id.).
Indeed, AXIS “has not produced any events in its entire history as a company.”
(Id. at ¶ 40). What is more,
although the AXIS website states that the company’s
corporate address is located on West 40th Street in New
York, New York and also suggests that the company has
offices in Atlanta and Los Angeles, AXIS’s Certificate of
Incorporation, the [New York State Department of State]
website, and the ‘Notices’ provision in the Guaranty
Agreement all list the company’s address at the
residence of the Albano Defendants in Locust Valley,
New York.
(Id. at ¶ 34).
b.
WSOG
According to Plaintiff, the WSOG entity from the accounts of which the
initial payment to Plaintiff was drawn is also mired in fraud. WSOG LLC was
organized in Delaware on March 7, 2014. (Compl. ¶ 45). Another WSOG entity
was organized in New York on March 2, 2016. (Id.; id., Ex. J). Its address for
service of process is a Bayville, New York property owned by Debra Albano.
(Id.; see also id., Ex. J, K).
Plaintiff alleges that “since at least as early as 2014, and continuing
through the present, the Albano Defendants have made numerous false
representations on the WSOG Website about the current operations of WSOG,”
6
including “misrepresentations about WSOG’s history of operations since the
Albano Defendants took control of the WSOG Website and the WSOG brand.”
(Compl. ¶ 70). For example: “The WSOG Website advertises that the company
engages in online gambling activities as well as an annual live three-day golfing
event in which finalists are eligible to win a $250,000 grand prize.” (Id. at
¶ 43). A July 22, 2014 press release on the WSOG website announced “the
creation of a partnership between WSOG and AXIS to launch a ‘contest for
golfing bloggers,’” the winner of which “would receive a trip to the September
2014 World Series of Golf tournament weekend” at Mohegan Sun. (Id. at ¶ 46;
see also id., Ex. H). The WSOG website in 2015 and 2016 has maintained
different iterations of a membership signup that solicits the payment of a
membership fee with no specified benefits of membership. (Id. at ¶¶ 46-47; see
also id., Ex. H, L).
Plaintiff alleges that neither the Mohegan Sun event nor “the series of
subsequent WSOG events that the WSOG Website claims occurred throughout
2014 and 2015” ever took place. (Compl. ¶ 46). And the membership signup is
simply “a scheme designed to trick unsuspecting golf and poker enthusiasts
into providing credit card information to WSOG and paying a ‘membership fee’
to WSOG for non-existent goods and services.” (Id. at ¶ 48).
c.
Other Albano-Related Entities
Plaintiff alleges that her claims of fraud are bolstered by the Albanos’
connection “to approximately one dozen inactive companies in New York and
Nevada,” all of which “were opened and either closed or abandoned since
7
2001.” (Compl. ¶ 49). “There is little evidence that any of these companies
ever conducted any actual business.” (Id.).
As a specific example, Plaintiff recites that, in 2014, Joseph Albano and
one of the Albanos’ Nevada entities, Envy Digital Entertainment Inc. (“Envy”),
were sued in New Jersey Superior Court by the National Football League
Alumni Association (the “NFLAA”), which alleged that it had given Envy and
Joseph Albano hotel rooms and Super Bowl tickets in exchange for the
production of an NFLAA awards show that Envy and Joseph Albano ultimately
revealed themselves as unable to produce. (Compl. ¶ 50). The NFLAA also
alleged that Envy and Joseph Albano dramatically misrepresented the progress
of that production when asked about it. (Id.).
B.
Procedural Background
Plaintiff filed her Complaint on October 6, 2016, raising civil RICO claims
against the Albanos and common-law claims against all Defendants. (Dkt. #1).
On November 16, 2016, Defendants requested that the Court schedule a premotion conference to discuss Defendants’ contemplated motion to dismiss.
(Dkt. #23). That conference was held on December 7, 2016. (Dkt. #28).
Afterward, the Court set a briefing schedule for Defendants’ motion. (Dkt.
#27).
Defendants filed their motion on January 23, 2017. (Dkt. #33-34).
Plaintiff filed her opposition to Defendants’ motion on February 24, 2017 (Dkt.
#35), and Defendants filed their reply on March 24, 2017 (Dkt. #37).
8
On June 12, 2017, Plaintiff filed a letter requesting that the Court take
judicial notice of a case that she alleges “reveals a new piece of the Albano
Defendants’ fraudulent scheme.” (Dkt. #38). Defendants opposed Plaintiff’s
request on June 13, 2017. (Dkt. #39).
DISCUSSION
A.
Applicable Law
Defendants’ principal argument is that Plaintiff has overstated her
case — that she has attempted, through artful pleading, to transform a run-ofthe-mill business dispute into a racketeering enterprise, and thereby obtain
treble damages and attorney’s fees. To contextualize its explanation of why
this argument fails, the Court will outline in this section the complexity of the
RICO statute, demonstrating both the statute’s nuances and their interplay
with the pleading requirements of the Federal Rules of Civil Procedure.
1.
Civil RICO
a.
Generally
Plaintiff asserts violations of RICO’s third and fourth substantive
prohibitions against “racketeering activity.” (See Compl. ¶¶ 81-93). The third
prohibition, contained in Section 1962(c), makes it “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.” 18 U.S.C. § 1962(c). A plaintiff bringing a civil RICO
claim under Section 1962(c) must allege that (i) the defendant has violated the
9
substantive RICO statute; and (ii) the plaintiff was injured in her business or
property by reason of a violation of Section 1962. See, e.g., Spool v. World
Child Int’l Adoption Agency, 520 F.3d 178, 183 (2d Cir. 2008). To make out a
substantive RICO violation, in turn, a plaintiff must allege the (i) conduct (ii) of
an enterprise (iii) through a pattern (iv) of racketeering activity. See, e.g.,
Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985); Cruz v.
FXDirectDealer, LLC, 720 F.3d 115, 120 (2d Cir. 2013). “The requirements of
[S]ection 1962(c) must be established as to each individual defendant.”
DeFalco v. Bernas, 244 F.3d 286, 306 (2d Cir. 2001); accord First Capital Asset
Mgmt., Inc. v. Satinwood, Inc., 385 F.3d 159, 180 (2d Cir. 2004).
The fourth prohibition, in Section 1962(d), makes it unlawful for anyone
to conspire to violate any portion of the statute. 18 U.S.C. § 1962(d). As
compared with Section 1962(c), the “requirements for RICO[ ] conspiracy
charges under § 1962(d) are less demanding: A conspirator must intend to
further an endeavor which, if completed, would satisfy all of the elements of a
substantive criminal offense, but it suffices that [she has adopted] the goal of
furthering or facilitating the criminal endeavor.” First Capital Asset Mgmt., 385
F.3d at 178 (alterations in original) (internal quotation mark omitted) (quoting
Baisch v. Gallina, 346 F.3d 366, 376-77 (2d Cir. 2003)). In other words, a
“plaintiff must show a corrupt agreement, an overt act in furtherance of that
agreement, and membership in the conspiracy by each defendant,” all of which
“may be inferred from circumstantial evidence.” Cofacredit, S.A. v. Windsor
Plumbing Supply Co., 187 F.3d 229, 240 (2d Cir. 1999). “In the civil context, a
10
plaintiff must allege that the defendant knew about and agreed to facilitate the
scheme.” City of N.Y. v. Bello, 579 F. App’x 15, 17 (2d Cir. 2014) (summary
order) (internal quotation mark omitted) (quoting Baisch, 346 F.3d at 377).
b.
The RICO Enterprise and Its Components
A RICO enterprise must be “an entity separate and apart from the
pattern of activity in which it engages.” United States v. Turkette, 452 U.S.
576, 583 (1981). As the Second Circuit has “long recognized, the plain
language and purpose of the statute contemplate that a person violates the
statute by conducting an enterprise through a pattern of criminality. It thus
follows that a corporate person cannot violate the statute by corrupting itself.”
Cruz, 720 F.3d at 120 (emphases in original) (citing Bennett v. U.S. Tr. Co. of
N.Y., 770 F.2d 308, 315 (2d Cir. 1985)). Rather, a plaintiff bringing a RICO
claim must allege the existence of two distinct entities — a person and an
enterprise. See id. (quoting City of N.Y. v. Smokes-Spirits.com, Inc., 541 F.3d
425, 438 n.15 (2d Cir. 2008)).
A “person” is defined as “any individual or entity capable of holding a
legal or beneficial interest in property.” 18 U.S.C. § 1961(3). And with respect
to a person’s “participation” in a racketeering enterprise, the Supreme Court
has clarified that
In order to participate, directly or indirectly, in the
conduct of such enterprise’s affairs, [in violation of
§ 1962(c),] one must have some part in directing those
affairs. Of course, the word participate makes clear that
RICO liability is not limited to those with primary
responsibility for the enterprise’s affairs, just as the
phrase directly or indirectly makes clear that RICO
liability is not limited to those with a formal position in
11
the enterprise, but some part in directing the enterprise’s
affairs is required.
United States v. Praddy, 725 F.3d 147, 155 (2d Cir. 2013) (internal quotation
marks omitted) (quoting Reves v. Ernst & Young, 507 U.S. 170, 179 (1993)
(footnote omitted) (second “some” emphasized in original; other emphases
added in Praddy)). Stated somewhat differently, a defendant must be shown to
have “participate[d] in the operation or management of the enterprise itself.” Id.
(alteration and emphasis in original) (internal quotation marks omitted)
(quoting Reves, 507 U.S. at 185). This “operation or management” test “has
proven to be a relatively low hurdle for plaintiffs to clear ... especially at the
pleading stage.” First Capital Asset Mgmt., 385 F.3d at 176 (citations omitted).
“A RICO enterprise ‘includes any individual, partnership, corporation,
association, or other legal entity, and any union or group of individuals
associated in fact although not a legal entity.’” DeFalco, 244 F.3d at 306
(quoting 18 U.S.C. § 1961(4)); accord First Capital Asset Mgmt., 385 F.3d at
173. Unsurprisingly, “RICO requirements are most easily satisfied when the
enterprise is a formal legal entity.” First Capital Asset Mgmt., Inc., 385 F.3d at
173. Indeed, the Second Circuit has held that “any legal entity may qualify as
a RICO enterprise.” D. Penguin Bros. Ltd. v. City Nat’l Bank, 587 F. App’x 663,
666 (2d Cir. 2014) (summary order) (internal quotation marks omitted) (quoting
First Capital Asset Mgmt., 385 F.3d at 173) (finding district court erred in
concluding that plaintiffs had failed to plead enterprise element, where
plaintiffs had alleged that entity was not-for-profit corporation).
12
Other groupings can still qualify as a RICO enterprise, but the test is
somewhat more stringent: “[F]or an association of individuals to constitute an
enterprise, the individuals must share a common purpose to engage in a
particular fraudulent course of conduct and work together to achieve such
purposes.” Cruz, 720 F.3d at 120 (alteration in original) (internal quotation
marks omitted) (quoting First Capital Asset Mgmt., 385 F.3d at 174).
c.
The Requirement of a Pattern
“A ‘pattern of racketeering activity requires at least two acts of
racketeering activity.’” DeFalco, 244 F.3d at 306 (quoting 18 U.S.C. § 1961(5)).
These acts must be “related” and they must “amount to or pose a threat of
continued criminal activity.” H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239
(1989).
i.
Relatedness
Predicate crimes must be related both to each other (“horizontal
relatedness”) and to the enterprise as a whole (“vertical relatedness”). See
Reich v. Lopez, 858 F.3d 55, 60 (2d Cir. 2017) (citing United States v. Cain, 671
F.3d 271, 284 (2d Cir. 2012)). “Vertical relatedness, which entails the simpler
analysis, requires only ‘that the defendant was enabled to commit the offense
solely because of his position in the enterprise or his involvement in or control
over the enterprise’s affairs, or because the offense related to the activities of
the enterprise.’” Reich, 858 F.3d at 61 (quoting United States v. Burden, 600
F.3d 204, 216 (2d Cir. 2010)).
13
“[P]redicate acts are horizontally related 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.’” Reich, 858 F.3d at 61 (emphasis in original) (quoting H.J., 492 U.S. at
240). “When dealing with ‘an enterprise whose business is racketeering
activity, such as an organized crime family,’ horizontal relatedness can be
established simply by linking each act to the enterprise.” Id. (quoting United
States v. Coppola, 671 F.3d 220, 243 (2d Cir. 2012) (internal punctuation and
citations omitted)). “When dealing with an enterprise that is primarily a
legitimate business, however, courts must determine whether there is a
relationship between the predicate crimes themselves; and that requires a look
at, inter alia, whether the crimes share ‘purposes, results, participants,
victims, or methods of commission.’” Id. (quoting H.J., 492 U.S. at 240).
ii.
Continuity
“RICO targets conduct that ‘amount[s] to or pose[s] a threat of continued
criminal activity.’” Reich, 858 F.3d at 60 (alterations in original) (quoting H.J.,
492 U.S. at 239). “Such continuity can be closed-ended or open-ended.” Id.
“Criminal activity that occurred over a long period of time in the past has
closed-ended continuity, regardless of whether it may extend into the future.”
Reich, 858 F.3d at 60. “As such, closed-ended continuity is ‘primarily a
temporal concept’” id. (quoting Spool, 520 F.3d at 184), “and it requires that
the predicate crimes extend ‘over a substantial period of time’” id. (quoting H.J.,
492 U.S. at 242). The Second Circuit “generally requires that the crimes
14
extend over at least two years.” Id. (citing Spool, 520 F.3d at 184 (“Although we
have not viewed two years as a bright-line requirement, it will be rare that
conduct persisting for a shorter period of time establishes closed-ended
continuity[.]”)).
“On the other hand, criminal activity ‘that by its nature projects into the
future with a threat of repetition’ possesses open-ended continuity, and that
can be established in several ways.” Reich, 858 F.3d at 60 (quoting H.J., 492
U.S. at 241). When, for example, “the business of an enterprise is primarily
unlawful, the continuity of the enterprise itself projects criminal activity into
the future.” Id. (citing Spool, 520 F.3d at 185). “And similarly, criminal activity
is continuous when ‘the predicate acts were the regular way of operating that
business,’ even if the business itself is primarily lawful.” Id. (quoting
Cofacredit, 187 F.3d at 243).
d.
Racketeering Activity
“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, and financial-institution fraud
under 18 U.S.C. § 1344. See 18 U.S.C. § 1961(1).
i.
Bank Fraud
Pleading bank fraud requires allegations that a defendant knowingly
executed or attempted to execute a scheme or artifice to (i) defraud a financial
institution, or (ii) “to obtain any of the moneys, funds, credits, assets,
securities, or other property owned by, or under the custody or control of, a
15
financial institution, by means of false or fraudulent pretenses,
representations, or promises.” 18 U.S.C. § 1344.
ii.
Mail and Wire Fraud
By contrast, the “essential elements of [mail and wire fraud] are [i] a
scheme to defraud, [ii] money or property as the object of the scheme, and
[iii] use of the mails or wires to further the scheme.” United States v. Weaver,
860 F.3d 90, 94 (2d Cir. 2017) (per curiam) (first alteration in original) (internal
quotation mark omitted) (quoting United States v. Binday, 804 F.3d 558, 569
(2d Cir. 2015)). “Because the mail fraud and the wire fraud statutes use the
same relevant language, [courts] analyze them the same way.” Id. (internal
quotation marks omitted) (quoting United States v. Greenberg, 835 F.3d 295,
305 (2d Cir. 2016)).
“[T]he gravamen of the offense is the scheme to defraud.” Weaver, 860
F.3d at 94 (alteration in original) (internal quotation marks omitted) (quoting
Greenberg, 835 F.3d at 305). “In order to prove the existence of a scheme to
defraud,” a party must prove both “‘that the misrepresentations were material’
and that the defendant acted with fraudulent intent.” Id. (citation omitted)
(quoting U.S. ex rel. O’Donnell v. Countrywide Home Loans, Inc., 822 F.3d 650,
657 (2d Cir. 2016)) (citing Greenberg, 835 F.3d at 305-06).
(A)
Materiality
“A statement is material if the ‘misinformation or omission would
naturally tend to lead or is capable of leading a reasonable [person] to change
[his] conduct.’” Weaver, 860 F.3d at 94 (alterations in original) (quoting United
16
States v. Rybicki, 354 F.3d 124, 145 (2d Cir. 2003) (en banc) (discussing
honest services fraud)). “In other words, a ‘lie can support a fraud conviction
only if it is material, that is, if it would affect a reasonable person’s evaluation
of a proposal.’” Id. “A ‘false statement is material if it has a natural tendency
to influence, or is capable of influencing, the decision of the [decisionmaker] to
which it was addressed.’” Id. (alteration in original) (quoting United States v.
Corsey, 723 F.3d 366, 373 (2d Cir. 2013)).
(B)
Fraudulent Intent
Intertwined with materiality is the element of fraudulent intent. See
United States v. Thomas, 377 F.3d 232, 242-43 (2d Cir. 2004). The Second
Circuit has clarified that “[t]he ‘role of the ordinary prudence and
comprehension standard [in the materiality element] is to assure that the
defendant’s conduct was calculated to deceive, not to grant permission to take
advantage of the stupid or careless.’” Weaver, 860 F.3d at 95 (second
alteration in original) (quoting Thomas, 377 F.3d at 242). “That is, the
unreasonableness of a fraud victim in relying (or not) on a misrepresentation
does not bear on a defendant’s criminal intent in designing the fraudulent
scheme, whereas the materiality of the false statement does.” Id.
2.
Pleading Standards
The difficulties in pleading a viable civil RICO claim arise not merely from
the substantive requirements of Section 1962, but from the pleading
requirements of the Federal Rules of Civil Procedure, specifically, Rules 12(b)(6)
and 9(b).
17
a.
Rule 12(b)(6)
When considering a motion to dismiss under this rule, a court should
“draw all reasonable inferences in [the plaintiffs’] favor, assume all well-pleaded
factual allegations to be true, and determine whether they plausibly give rise to
an entitlement to relief.” Faber v. Metro. Life Ins. Co., 648 F.3d 98, 104 (2d Cir.
2011) (internal quotation marks and citation omitted) (quoting Selevan v. N.Y.
Thruway Auth., 584 F.3d 82, 88 (2d Cir. 2009)). Thus, “[t]o 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)).
In this regard, a complaint is deemed to include any written instrument
attached to it as an exhibit or any statements or documents incorporated in it
by reference. See, e.g., Hart v. FCI Lender Servs., Inc., 797 F.3d 219, 221 (2d
Cir. 2015) (citing Fed. R. Civ. P. 10(c) (“A statement in a pleading may be
adopted by reference elsewhere in the same pleading or in any other pleading
or motion. A copy of a written instrument that is an exhibit to a pleading is a
part of the pleading for all purposes.”)).
“While Twombly does not require heightened fact pleading of specifics, it
does require enough facts to ‘[nudge a plaintiff’s] claims across the line from
conceivable to plausible.’” In re Elevator Antitrust Litig., 502 F.3d 47, 50 (2d
Cir. 2007) (per curiam) (quoting Twombly, 550 U.S. at 570). “Where a
complaint pleads facts that are ‘merely consistent with’ a defendant’s liability,
18
it ‘stops short of the line between possibility and plausibility of entitlement to
relief.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 557). Moreover,
“the tenet that a court must accept as true all of the allegations contained in a
complaint is inapplicable to legal conclusions. Threadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do
not suffice.” Id.
That said, the “Twombly plausibility standard ... does not prevent a
plaintiff from pleading facts alleged ‘upon information and belief’ where the
facts are peculiarly within the possession and control of the defendant, or
where the belief is based on factual information that makes the inference of
culpability plausible.” Lefkowitz v. McGraw-Hill Glob. Educ. Holdings, LLC, 23
F. Supp. 3d 344, 356 (S.D.N.Y. 2014) (quoting Arista Records, LLC v. Doe 3,
604 F.3d 110, 120 (2d Cir. 2010)). Indeed, the Court is mindful of the Circuit’s
instruction that “a district court should not dismiss a claim ‘unless it is
satisfied that the complaint cannot state any set of facts that would entitle [the
plaintiff] to relief.’” Id. (quoting Patel v. Contemporary Classics of Beverly Hills,
259 F.3d 123, 126 (2d Cir. 2001)).
b.
Rule 9(b)
“Because they are fraud-based,” predicate acts of wire fraud, mail fraud,
and bank fraud “must be pleaded with particularity in accordance with Federal
Rule of Civil Procedure 9(b).” Jus Punjabi, LLC v. Get Punjabi US, Inc., 640 F.
App’x 56, 58 (2d Cir. 2016) (summary order) (citing Lundy v. Catholic Health
Sys. of Long Island Inc., 711 F.3d 106, 119 (2d Cir. 2013); First Capital Asset
19
Mgmt., 385 F.3d at 178). This particularity requirement extends “to each
defendant.” Fuji Photo Film U.S.A., Inc. v. McNulty, 640 F. Supp. 2d 300, 314
(S.D.N.Y. 2009).
“To satisfy this requirement, a complaint must specify the time, place,
speaker, and content of the alleged misrepresentations, explain how the
misrepresentations were fraudulent and plead those events which give rise to a
strong inference that the defendant[ ] had an intent to defraud, knowledge of
the falsity, or a reckless disregard for the truth.” Jus Punjabi, 640 F. App’x at
58 (alteration in original) (internal quotation marks omitted) (quoting Cohen v.
S.A.C. Trading Corp., 711 F.3d 353, 359 (2d Cir. 2013)); see also First Capital
Asset Mgmt., 385 F.3d at 178-79. By contrast, “[m]alice, intent, knowledge,
and other conditions of mind may be averred generally.” Kalnit v. Eichler, 264
F.3d 131, 138 (2d Cir. 2001) (alteration in original) (internal quotation marks
omitted) (quoting Fed. R. Civ. P. 9(b)).
And while it is true, as described above, “that matters peculiarly within a
defendant’s knowledge may be pled ‘on information and belief,’ this does not
mean that those matters may be pled lacking any detail at all.” First Capital
Asset Mgmt., 385 F.3d at 179. “Where a plaintiff is permitted to plead on
information and belief, the ‘complaint must adduce specific facts supporting a
strong inference of fraud or it will not satisfy even a relaxed pleading
standard.’” Fuji Photo Film U.S.A., 640 F. Supp. 2d at 310 (quoting Wood ex rel.
U.S. v. Applied Research Assocs., Inc., 328 F. App’x 744, 747 n.1 (2d Cir. 2009)
(amended summary order)); see also DiVittorio v. Equidyne Extractive Indus.,
20
Inc., 822 F.2d 1242, 1247 (2d Cir. 1987) (“[T]he allegations must be
accompanied by a statement of the facts upon which the belief is based.”).
B.
Analysis
1.
A Summary of Defendants’ Arguments
Defendants argue that Plaintiff’s “complaint is nothing more than a
collection of innuendo, rumor, and ‘spin.’” (Def. Br. 3). They challenge the
adequacy of Plaintiff’s enterprise and pattern of racketeering activity
allegations. They contest the inclusion of Debra Albano as a Defendant. And
they challenge the exclusion of the Buyer LLC, the actual counterparty to the
MCC sale transaction.
Defendants first focus on the statements that allegedly underlay the
MCC sale transaction. They take issue with two allegedly fraudulent
statements — Defendants’ representation concerning their ability to meet their
obligations in the Guaranty Agreement, and AXIS’s claim of “15 years of
experience” — which Defendants say are at most mere puffery or statements of
future hope or expectation, and not misrepresentations of existing fact. (Def.
Br. 3, 8). Defendants also claim they lacked contemporaneous intent to
defraud when these statements were made. (Id. at 8).
Defendants then contest certain additional facts proffered by Plaintiff as
evidence of Defendants’ fraudulent intent, including Plaintiff’s claims in
paragraphs 41 to 48 of the Complaint regarding the World Series of Golf entity.
Defendants argue that in this section of the Complaint, Plaintiff is talking
about alleged fraud that took place in 2016, two years after the transaction
21
between the parties in this case, and that the use of a WSOG check does not
signify fraud. (Def. Br. 12).
More broadly, Defendants take issue with Plaintiff’s RICO claims “pled on
information and belief,” arguing that this mode of pleading is insufficient to
demonstrate the requisite pattern and alleged fraud. (Def. Br. 3, 10).
Examples of allegations pled in this way include (i) Plaintiff’s allegations that
Defendants do not have functioning offices other than at the Albanos’ residence
(id. at 10); and (ii) Plaintiff’s allegation that Defendants deliberately
undercapitalized their entities (id. at 11); (iii) Plaintiff’s claims in paragraphs
37, 38, 39, 40, and 42 (id.). They also request that the Court take judicial
notice of certain websites that they contend bolster the legitimacy of AXIS and
Defendants’ other businesses and, in consequence, undermine Plaintiffs’
enterprise allegations. (Id. at 7).
Separate and apart from any deficiencies in Plaintiff’s RICO claims,
Defendants argue that “[t]here is no well-pleaded case against [Debra] Albano.”
(Def. Br. 4). The only facts alleged in the Complaint that relate to her are that
she is married to Joseph Albano, made an initial payment under the Purchase
Agreement, and filed a certificate of incorporation for AXIS. (Id.). According to
Defendants, naming Debra as a Defendant was just “a mean-spirited attempt
to put the Albano family in fear of losing their home.” (Id.).
Finally, Defendants argue that the company that purchased Plaintiff’s
business, the Buyer LLC, is a necessary party in this case, which must be
added. (Def. Br. 13-14). And upon that party’s addition, Defendants believe
22
this case must be remanded for arbitration pursuant to the arbitration clause
in the Purchase Agreement. (Id.). All of these arguments are addressed, and
rejected, in the remainder of this Opinion. 3
2.
Plaintiff Has Pleaded the Existence of Several Enterprises
Plaintiff has adequately alleged that the Albanos were “persons” under
the RICO statute who violated that statute by conducting enterprises — AXIS,
the Buyer LLC, and WSOG — through a pattern of criminality. See Cruz, 720
F.3d at 120. She alleges that these legal entities were “individual enterprises in
and of themselves” (Compl. ¶ 56), and the Court agrees. See D. Penguin Bros.,
587 F. App’x at 666 (quoting First Capital Asset Mgmt., 385 F.3d at 173).
Plaintiff has further adequately alleged that these entities “together ...
constitute an association-in-fact managed and operated by the Albano
Defendants.” (Compl. ¶ 56). “An association-in-fact enterprise ‘is proved by
evidence of an ongoing organization, formal or informal, and by evidence that
the various associates function as a continuing unit.’” D. Penguin Bros., 587 F.
App’x at 667 (quoting Boyle v. United States, 556 U.S. 938, 945 (2009)); see
also Turkette, 452 U.S. at 583. “This type of RICO enterprise ‘must have at
least three structural features: [i] a purpose, [ii] relationships among those
associated with the enterprise, and [iii] longevity sufficient to permit these
3
Defendants make a fifth argument as well: If the Court dismisses Plaintiff’s RICO
claims, Defendants contend that Plaintiff’s common-law claims must necessarily be
dismissed as well. (Def. Br. 13). Defendants argue that, in that eventuality, the Court
should decline to exercise supplemental jurisdiction. (Id.). Because the Court is not
dismissing Plaintiff’s RICO claims, this argument is moot.
23
associates to pursue the enterprise’s purpose.” D. Penguin Bros., 587 F. App’x
at 667 (quoting Boyle, 556 U.S. at 946).
All three features are pleaded here. Plaintiff alleges that the Albanos
utilized AXIS, the Buyer LLC, and WSOG “to create the appearance of longfunctioning and successful business ventures in the sports, entertainment,
event production[,] and media industries.” (Compl. ¶ 59; see also id. at ¶¶ 6062). The Albanos did so in order to profit themselves, through such ventures
as the MCC transaction and the “credit card scam perpetrated through the
current WSOG Website.” (Id. at ¶ 63, see also id. at ¶¶ 61-62). Plaintiff has
also alleged relationships among those entities: the Albanos are married, have
represented themselves as the officers of AXIS, and operate these entities out of
properties they own (id. at ¶¶ 1, 12, 34, 36-38); Debra Albano made the first
MCC transaction payment with a WSOG check (id. at ¶¶ 23, 37); AXIS agreed
to guarantee the Buyer LLC’s obligations to Plaintiff under the Purchase
Agreement (id. at ¶¶ 18-22); and AXIS and WSOG have in the past announced
themselves as partners (id. at ¶ 46). And these relationships are alleged to
span from early 2014 through October 6, 2016, the date that Plaintiff brought
this case.
And Plaintiff has adequately alleged that the Albanos were persons who
participated, directly or indirectly, in the conduct of the affairs of the enterprise
or enterprises. For example, Joseph Albano is identified as the president
and/or CEO of AXIS, and “he was the face of all negotiations and day-to-day
operations in connection with the MCC Transaction.” (Pl. Br. 6 (citing Compl.
24
¶¶ 17, 19, 24, 27-31, 33, 36-38, 55)). Debra Albano “signed AXIS’s certificate
of incorporation as the incorporator, designated herself as the original agent for
service of process, signed the two MCC Transaction payment checks on behalf
of WSOG and the Buyer LLC, and owns the property listed as the address for
service of process on WSOG.” (Id. (citing Compl. ¶¶ 37, 38, 41, 45, 55)). All of
these allegations suffice to plead one, if not several, RICO enterprises.
3.
Plaintiff Has Pleaded a Pattern of Racketeering Activity
To plead a pattern of racketeering activity, Plaintiff must plead that each
of the Albanos, through the commission of two or more predicate acts
constituting a pattern of racketing activity, directly or indirectly participated in
the enterprises alleged in the Complaint. In this regard, Defendants challenge
Plaintiff’s ability to plead predicate acts of bank, wire, or mail fraud.
Specifically, Defendants argue that the Albanos never misrepresented their
ability to meet their obligations under the Guaranty Agreement, nor did they
fraudulently misrepresent AXIS’s “15 years of experience.” Defendants also
take issue with Plaintiff’s reliance on allegations made “on information and
belief.”
The Court cannot accept Defendants’ arguments at this stage of the
litigation. Plaintiff has pleaded the existence of a scheme to defraud,
comprising material misrepresentations made by Defendants with fraudulent
intent. Plaintiff has also pleaded with particularity facts to support her
allegations of Defendants’ fraud. And insofar as Plaintiff has pleaded “matters
peculiarly within a defendant’s knowledge ... ‘on information and belief,’” she
25
has not pled such matters “lacking any detail at all.” See First Capital Asset
Mgmt., 385 F.3d at 179. Rather, Plaintiff has “adduce[d] specific facts
supporting a strong inference of fraud[.]” See Fuji Photo Film U.S.A., 640 F.
Supp. 2d at 310 (quoting Wood ex rel. United States, 328 F. App’x at 747 n.1);
DiVittorio, 822 F.2d at 1247.
With regard to the alleged misstatement in the Guaranty Agreement — to
the effect that AXIS “ha[d] the financial capacity to pay and perform its
obligations” under that agreement (Compl., Ex. B, ¶ 6(e)) — Plaintiff identified
who made the statement (Joseph Albano, as President of AXIS), and where and
when it was made (in the Guaranty Agreement, at the time of the agreement’s
execution), and why the statement was fraudulent (because at the time, AXIS
could not guarantee the payment of the Buyer LLC’s obligations under the
Purchase Agreement). (Compl. ¶¶ 21-22, 25, 27-28). Plaintiff has alleged
materiality and fraudulent intent: AXIS’s Guaranty was intended to and in fact
did induce Plaintiff to execute the Purchase Agreement with the Buyer LLC,
which lacked assets of its own.
Defendants retort that the statement is mere puffery. And Defendants
are correct that “declaration[s] of intention, hope, or projections of future
earnings” have been identified in this District “as the hallmarks of inactionable
puffery.” In re Moody’s Corp. Sec. Litig., 599 F. Supp. 2d 493, 508-09 (S.D.N.Y.)
(collecting cases), opinion corrected on denial of reconsideration, 612 F. Supp.
2d 397 (S.D.N.Y. 2009). But optimistic statements “may be actionable upon a
showing that the defendants did not genuinely or reasonably believe the
26
positive opinions they touted ..., or that the opinions imply certainty.” Lapin v.
Goldman Sachs Grp., Inc., 506 F. Supp. 2d 221, 239 (S.D.N.Y. 2006); see also
Novak v. Kasaks, 216 F.3d 300, 315 (2d Cir. 2000) (holding that statements
that inventory situation was “in good shape” and “under control” were
actionable because defendants “allegedly knew that the contrary was true”); In
re IBM, 163 F.3d 102, 107 (2d Cir. 1998). Here, AXIS’s representation in the
Guaranty Agreement is actionable because Joseph Albano represented that
AXIS had the capacity to guarantee the entirety of the Buyer LLC’s obligations
under the Purchase Agreement when, it is alleged, he knew that it did not.
A similar result obtains in evaluating the alleged misstatements on the
AXIS and WSOG websites. (See Compl. ¶¶ 24, 32-33, 70). Plaintiff has
identified the Albanos as the authors of the statements, 4 identified where and
when they were posted on the AXIS and WSOG websites, and provided
evidence of facts that directly disprove the websites’ statements. Defendants
respond by introducing facts that they believe undermine Plaintiff’s evidence,
4
Courts in this Circuit have accepted the doctrine of group pleading in the context of
Rule 9’s requirement of statement attribution. See, e.g., Loreley Fin. (Jersey) No. 3 Ltd.
v. Wells Fargo Sec., LLC, 797 F.3d 160, 173 (2d Cir. 2015) (“Where a plural author is
implied by the nature of the representations — for instance, where, as here, [i] the
alleged fraud is based on statements made in the offering materials and [ii] the
complaint gives grounds for attributing the statements to the group — group pleading
may satisfy the source identification required by Rule 9(b).”); S.E.C. v. Espuelas, 579 F.
Supp. 2d 461, 482 n.10 (S.D.N.Y. 2008) (“[T]he group pleading doctrine can only be
invoked to attribute fraudulent statements to defendants, remaining wholly insufficient
to plead scienter.”). Here, given Plaintiff’s allegation that AXIS is an entity operated
wholly and solely by the Albanos, the Court finds the Complaint gives grounds for
attributing the statements on AXIS’s website to both Albanos. The Court notes,
however, that if discovery indicates that only Joseph Albano managed AXIS’s website,
Plaintiff may be left with little to support her claims against Debra Albano. See DeFalco
v. Bernas, 244 F.3d 286, 306 (2d Cir. 2001) (“The requirements of section 1962(c) must
be established as to each defendant.”).
27
and by inviting the Court to draw inferences from Plaintiff’s evidence that
support their arguments. But the Court cannot draw the inferences that
Defendants wish that it would at this stage, because the Court is obligated to
draw all reasonable inferences in Plaintiff’s favor. And even if the Court took
judicial notice of the materials submitted by Defendants in support of their
motion (Dkt. #33-1), it could not reason from these materials as Defendants
urge. The Court cannot take judicial notice of “the truth of the matters
asserted” in a document appropriate for judicial notice. Beauvoir v. Israel, 794
F.3d 244, 248 n.4 (2d Cir. 2015) (internal quotation mark omitted) (quoting
Roth v. Jennings, 489 F.3d 499, 509 (2d Cir. 2007)). Thus, Plaintiff is correct
that many of Defendants’ arguments against her allegations amount to
“alternative explanations” that implicate “question[s] of fact not ripe for
adjudication at this stage.” (Pl. Opp. 10 n.2). Here, the Court finds that the
mass of Plaintiff’s factual allegations give rise to a strong inference of fraud.
The Court does agree with Defendants that one method of Plaintiff’s
pleading does Plaintiff no favors: Where Plaintiff pleads her fraud claims
interdependently — i.e., where she pleads that certain statements are
fraudulent on the basis of the fraudulence of other statements — Plaintiff’s
pleading falters. However, in these instances, Plaintiff bolsters her allegations
with additional facts evidencing falsity. For example, with regard to Plaintiff’s
allegation that “the AXIS Website falsely claimed that AXIS’s client roster
included more than thirty of the largest brands in the United States,” Plaintiff
argues that falsity was demonstrated by “Defendants’ other fraudulent
28
representations on the AXIS Website.” (Pl. Opp. 9-10). However, Plaintiff also
argues that falsity was evidenced by Joseph Albano’s “apparent lack of
experience” and “the absence of any other evidence of such work on the AXIS
website or the completion of any other successful project via AXIS or
Defendants’ other companies.” (Id.).
The same is true with regard to Plaintiff’s allegation that “the AXIS
website falsely claimed the company had business[] offices in New York City,
Atlanta, and Los Angeles.” (Pl. Opp. 10 (citing Compl. ¶ 34)). Unhelpfully,
Plaintiff claims this statement must be false because of “all of the other
falsehoods alleged [in the Complaint] that were intended to create the
appearance that AXIS is a successful company.” (Id.). But Plaintiff also
indicates that “[t]he falsity of these statements is supported by ... the fact that
AXIS is registered in and operates out of the Albano Defendants’ home address,
[and] ... the fact that the Georgia and California secretaries of state do not list
AXIS as being registered to operate in their jurisdictions.” (Id.).
All told, Plaintiff’s allegations suffice at this stage to support her civil
RICO claims against the Albanos. Plaintiff has adequately pleaded that the
Albanos violated the RICO statute by conducting enterprises through a pattern
of criminality. And though it is a closer call, Plaintiff has adequately pleaded
the pattern requirement, by pleading with specificity at least two predicate acts
of wire fraud attributed to each of the Albanos. 5 Defendants have argued that
5
As best the Court can divine from their briefing, Defendants have not challenged
Plaintiff’s pleading with respect to the elements of relatedness or continuity. To the
extent that Defendants intended to do so, the Court agrees with Plaintiff that such
29
Plaintiff was unreasonable in relying on the alleged fraudulent statements, but
the Court cannot agree. Plaintiff has alleged Defendants’ conduct was
calculated to deceive, and the Court finds that Defendants’ alleged statements
were capable of inducing a reasonable person to change his or her conduct.
Defendants’ motion to dismiss Plaintiff’s RICO claims against the Albanos must
therefore be denied.
4.
This Case Can Continue Absent the Buyer LLC
Separately, Defendants argue that the joinder of the Buyer LLC is
required because in that entity’s absence, the Court “cannot accord complete
relief among existing parties.” Fed. R. Civ. P. 19(a)(1)(A). 6 And where joinder is
deemed necessary, the absent person or entity must be joined if feasible. See
Fed. R. Civ. P. 19(a). The Court finds this also to be a close call, but sides with
Plaintiff because it concludes that it is able to “accord complete relief among
existing parties” absent the Buyer LLC.
challenges would fail. Plaintiff has alleged the existence of a scheme that lasted from
2014 through 2016. Moreover, the scheme posed a threat of continued criminality
insofar as the AXIS and WSOG websites remained active as of the filing of the
Complaint. A consideration of the relatedness factors — purposes, results,
participants, victims, and methods of commission — leads the Court to conclude that
this element has been pleaded adequately as well. The Court also does not see that
Defendants have challenged Plaintiff’s RICO conspiracy claims under § 1962(d). But to
the extent that such a challenge was intended, the Court finds that the evidence
described above, circumstantial and otherwise, is adequate to support Plaintiff’s
pleading of the Albanos’ corrupt agreement, overt acts in furtherance thereof, and
membership in the conspiracy.
6
The Court agrees with Plaintiff that the exact scope and strength of this argument are
unclear from Defendants’ brief. (See Pl. Br. 23). Because Defendants do not cite to
Federal Rule of Civil Procedure 19, the Court cannot determine on precisely what basis
Defendants are moving. The Court limits its consideration to Rule 19(a)(1)’s first prong,
however, because Defendants’ cannot argue for joinder under its second prong absent a
claim by the Buyer LLC that it has an interest in this suit. See Fed. R. Civ.
P. 19(a)(1)(B); Peregrine Myanmar Ltd. v. Segal, 89 F.3d 41, 49 (2d Cir. 1996).
30
Plaintiff’s civil RICO claims are brought only against the Albanos; as
such, the Buyer LLC is no more a necessary party than WSOG, another entity
implicated in the alleged scheme, and one which Defendants do not argue need
be joined. Moreover, Plaintiff’s state-law claims are premised only on the
nonpayment of the quarterly payments owed under the Guaranty Agreement
(involving AXIS), not any breach of the Purchase Agreement (involving the
Buyer LLC). Particularly given the language of the Guaranty, the Court can
determine that Plaintiff failed to receive the Purchase Price without determining
that the Buyer LLC breached the Purchase Agreement.
Under New York law, it is well-settled that unconditional guarantees are
enforceable if written in “clear and unambiguous” terms. HSH Nordbank Ag
N.Y. Branch v. Swerdlow, 672 F. Supp. 2d 409, 418 (S.D.N.Y. 2009) (collecting
cases), aff’d sub nom. HSH Nordbank AG N.Y. Branch v. Street, 421 F. App’x 70
(2d Cir. 2011) (summary order). And “[w]here a guaranty states that it is
‘absolute and unconditional,’ guarantors are generally precluded from raising
any affirmative defense.” Id. (citing CFC v. Merrill Lynch, 188 F.3d 31, 35 (2d
Cir. 1999)); see also Elmhurst Dairy, Inc. v. Van Peenen’s Dairy, Inc., No. 10 Civ.
8627 (JSR), 2012 WL 1116978, at *2 (S.D.N.Y. Mar. 24, 2012). At the very
least, it is the case that “a guarantor cannot assert defenses that it expressly
waived in the guaranty agreement.” HSH Nordbank Ag, 672 F. Supp. at 418.
Indeed, “[u]nder New York law, the only affirmative defenses that are not
waived by an absolute and unconditional Guaranty are payment and lack of
consideration for the Guaranty.” Overseas Private Inv. Corp. v. Moyer, No. 15
31
Civ. 8171 (KBF), 2016 WL 3945694, at *4 (S.D.N.Y. July 19, 2016) (citing CIT
Group/Commercial Servs., Inc. v. Prisco, 640 F. Supp. 2d 401, 410 (S.D.N.Y.
2009) (citing Walcutt v. Clevite Corp., 13 N.Y.2d 48, 55-56 (1963))).
Here, the Guaranty Agreement identifies itself as “an unconditional
guarantee of payment and not of collection.” (Compl., Ex. B, ¶ 2). It
“absolutely, unconditionally[,] and irrevocably guarantees to the Seller ... the
due and punctual payment, observance, performance[,] and discharge of ... the
Purchase Price[.]” (Id. at ¶ 1). It allows that Plaintiff
may at any time and from time to time, without notice
to or further consent of the Guarantor, extend the time
of payment of the Guaranteed Obligations, and may
also make any agreement with [the Buyer LLC] or [MCC]
for the extension, renewal, payment, compromise,
discharge or release thereof, in whole or in part, without
any way impairing or affecting the Guarantor’s
Obligations[.]
(Id. at ¶ 3(a)). And it asserts that the Guaranteed Obligations hereunder “shall
not be released or discharged, in whole or in part, or otherwise affected by,”
among other things, “any change in the time, place[,] or manner of payment of
the Guaranteed Obligations”; the substitution of a party “liable with respect to
the Guaranteed Obligations”; “any change in the corporate existence, structure
or ownership of [the Buyer LLC]”; or “any insolvency, bankruptcy,
reorganization or other similar proceeding affecting [the Buyer LLC].” (Id. at
¶ 3(b)). In other words, notwithstanding any number of good reasons for the
Buyer LLC’s nonpayment of its obligations, the Guaranty Agreement obligated
32
AXIS to pay Plaintiff the original Purchase Price that Axis guaranteed therein.
See HSH Nordbank Ag, 672 F. Supp. 2d at 418-19.
Given this language, the Court need not adjudicate the validity or
existence of any justification for the Buyer LLC’s nonpayment in order to
determine the scope of AXIS’s liability. To the contrary, AXIS has likely waived
its right to raise the affirmative defenses it has disclaimed in the Guaranty
Agreement that could implicate the Buyer LLC. See HSH Nordbank Ag, 672 F.
Supp. 2d at 418; Overseas Private Inv. Corp., 2016 WL 3945694, at *4. And
even if AXIS were to raise the affirmative defenses available to it
notwithstanding any waiver — payment and a lack of consideration — neither
would require the Court to determine the Buyer LLC’s underlying liability for
breach. The Court can imagine a variety of scenarios in which the Purchase
Price was not paid but the Purchase Agreement not breached. But for
purposes of this litigation, these imaginings are irrelevant. Plaintiff’s claim that
the Guaranty Agreement was breached requires only a showing of nonpayment,
not any showing that the Purchase Agreement was breached.
The Buyer LLC is therefore not an indispensable party here. It may
vindicate its claims in a separate litigation or arbitration as appropriate, and
this case will continue without its joinder. 7
7
Moreover, the Court notes that even if the Buyer LLC were an indispensable party that
could not be joined for some reason, “Rule 19(b) does not authorize dismissal simply
because such a party cannot be joined. Instead, the Court would have to determine
‘whether in equity and good conscience the action should proceed among the parties
before it, or should be dismissed, the absent person thus being regarded as
indispensable.’” Jota v. Texaco, Inc., 157 F.3d 153, 162 (2d Cir. 1998) (quoting Fed. R.
Civ. P. 19(b)). “And in making this determination, the Court [would] consider, among
other things, ‘the extent to which, by protective provisions in the judgment, by the
33
CONCLUSION
As a policy matter, the Court sympathizes with the frustration evident in
Defendants’ briefing. Indeed,
there is no question that RICO’s private right of action,
in conjunction with the statute’s inclusion of mail and
wire fraud (for which there is no independent private
right of action) as racketeering acts, creates federal
treble damage actions out of business disputes that
would otherwise never be in federal court. However, the
Supreme Court long ago observed that “this defect — if
defect it is — is inherent in the statute as written, and
its correction must lie with Congress.”
Fresh Meadow Food Servs., LLC v. RB 175 Corp., 282 F. App’x 94, 100 (2d Cir.
2008) (summary order) (quoting Sedima S.P.R.L. v. Imrex Co., 473 U.S. 479,
499 (1985)).
For all of the reasons outlined above, Plaintiff’s Complaint passes
muster. Accordingly, Defendants’ motion to dismiss is DENIED, and the Clerk
of Court is directed to terminate the motion at docket entry 33. The parties are
directed to file a joint status letter and proposed case management plan that
comply with the requirements outlined in the Court’s Notice of the Initial
Pretrial Conference (Dkt. #13) on or before August 9, 2017. The parties are
forewarned that the Court will be disinclined to extend discovery deadlines,
once those deadlines are proposed by the parties and endorsed by the Court.
shaping of relief, or other measures, the prejudice can be lessened or avoided.’” Id.
(quoting Fed. R. Civ. P. 19(b)). Here, even if the Buyer LLC were an indispensable party,
the Court is not convinced dismissal would be required in these circumstances. The
Court could utilize protective provisions in its judgment or otherwise shape relief so as
to protect the interests and rights of the Buyer LLC.
34
SO ORDERED.
Dated:
July 18, 2017
New York, New York
__________________________________
KATHERINE POLK FAILLA
United States District Judge
35
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