JOSEPH F. BIANCO, District Judge:
Plaintiffs Rocco Marini ("Marini"), Josephine Marini ("Mrs. Marini" or "Josephine"), and T & R Knitting Mill, Inc. ("T & R" or "T & R Knitting") (collectively, "plaintiffs") brought this action against defendants Harold Adamo, Jr. ("Adamo"), Lisa Adamo ("Mrs. Adamo" or "Lisa"), The Bolton Group, Inc. ("Bolton" or "The Bolton Group"), and H. Edward Rare Coins & Collectibles, Inc. ("H. Edward") (collectively, "defendants"), alleging, inter alia, that Adamo violated the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq. ("RICO"), and asserting claims for securities fraud pursuant to Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Defendants have moved for partial summary judgment on plaintiffs' securities fraud and RICO claims, and on plaintiffs' state-law fraud, breach of contract, and New York General Business Law § 349 claims. For the reasons set forth herein, defendants' motion is denied with respect to the securities fraud, RICO, and state-law fraud and breach of contract claims. Defendants' motion is granted, however, with respect to plaintiffs' General Business Law claim.
The following facts are taken from the parties' depositions, declarations, exhibits and respective Local 56.1 statements of facts.
Plaintiffs' claims in this case stem from their purchase of rare coins from defendants at what plaintiffs claim were fraudulently inflated prices. Specifically, plaintiffs
By way of background, Marini and his wife, Josephine, became close friends with Adamo and his wife, Lisa, after the couples met each other in 1992. (Defs.' 56.1 ¶ 4.) The Marinis and Adamos are godparents to certain of the others' children, and they frequently socialized and went on family vacations together. (Id. ¶¶ 5-6.) Prior to engaging in the coin dealings that are the subject of the current action, Marini and Adamo apparently did not conduct any business together. Instead, Marini earned his living as a garment manufacturer through his company, T & R Knitting (Marini 12/31/09 Depo. at 199:8-203:25), and Adamo worked as a coin dealer, first as a salesperson for a company known as United Numismatics (Adamo 6/23/09 Depo. at 89:24-92:13) and later as a coin dealer through two companies (H. Edward and The Bolton Group) that he co-owns with his wife. (Id. at 24:15-26:5, 30:2-31:15; Defs. 56.1 ¶¶ 65-66.)
In August 2002, Marini and Adamo had an in-person meeting during which Adamo made numerous representations to Marini that rare coins were an excellent investment opportunity. (Defs.' 56.1 ¶ 7.) Specifically, in order to induce Marini to purchase coins from Adamo, Adamo represented to Marini that "the kind of coins that he was going to get us into were the top 1 percent of 1 percent, very rare, and those weren't the kind of coins that he has ever seen go down [in value]." (Marini 12/31/09 Depo. at 17:22-18:2; see also Defs.' 56.1 ¶ 7.) Adamo also told Marini that Marini could expect twenty to forty percent returns and that, if demanded by Marini, Adamo could repurchase coins from Marini at their present value within twenty-four to forty-eight hours of such demand. (Defs.' 56.1 ¶ 7.) In addition, Adamo insisted that Marini buy and sell coins only through Adamo. (Marini 12/31/09 Depo. at 5:18-6:6.) However, Adamo's coins were not subject to such a restrictive agreement, and Adamo was free to buy and sell his own coins without notifying Marini. (Defs.' 56.1 ¶ 9.) Further, although Adamo also told Marini that "it wasn't wise to publicize" his coin dealings with Adamo, Adamo did not direct Marini not to tell anyone else about the dealings. (Marini Depo. at 52:7-13.) Marini testified that his close relationship with Adamo, combined with Adamo's reassurances that Marini could "cash out in 24 to 48 hours," that the coins were rare and "couldn't go down in value," and that Marini was "getting in at what [Adamo] called the dirt bottom," made it "compelling for [Marini] to start investing with [Adamo]." (T & R 12/23/09 Depo. at 264:2-265:19.)
Consequently, Marini made his first coin purchase from Adamo in September 2002. (Defs.' 56.1 ¶ 18.) Over the course of approximately the next five years, until in or about May 2007,
As to the nature of Marini and Adamo's business relationship, it is undisputed that Marini did not know anything about rare coins and that, until Marini became suspicious of Adamo in June 2008, Marini "believe[d] everything" Adamo told him about the coins. (Defs.' 56.1 ¶ 11; Pls.' Response to Defs.' 56.1 ¶ 11.) Josephine, Marini's wife, was not involved in the decision-making process with respect to buying or trading coins, and she testified that once she and Marini "decided to buy coins," she "left it up to [Marini] to follow the advice of [Adamo] for which coins to buy." (J. Marini 12/28/09 Depo. at 49:21-50:16; see also Defs.' 56.1 ¶ 15.) Further, Marini did not contact Adamo about purchasing coins, but instead waited for Adamo to contact him regarding the coins that Adamo had obtained for Marini. (Defs.' 56.1 ¶ 12.) Lisa Adamo, however, neither made representations about rare coins to plaintiffs nor caused plaintiffs to purchase any coins. (Id. ¶ 72.) However, Lisa was present when certain cash payments were made by Marini to Adamo, and Marini testified that she "was just as engaging as [Marini] and Mr. Adamo." (Marini 6/25/10 Depo. at 73:6-24.)
Regarding the scheme to defraud, plaintiffs claim that Adamo "bilk[ed] Marini out of nearly 15 million dollars" by fraudulently misrepresenting "the value of the coins [Adamo] sold Marini and the propriety of coin investments," and by "continu[ing] to refuse to honor commitments to buy back Marini's coin purchases." (Second Amended Complaint ("SAC") Intro.) By way of example, plaintiffs allege that each time Marini made a coin purchase, Adamo reiterated the same purportedly false assurances he had given to Marini during their initial conversation in August 2002, namely, that Adamo was offering Marini extremely rare and valuable coins that were "a great value" and were "important. . . to add to our portfolio." (Defs.' 56.1 ¶ 13; Marini 12/31/09 Depo. at 8:19-24.) Moreover, with each transaction, Adamo not only purportedly told Marini that the proposed coins were "great for our portfolios" but also "led [Marini] to believe that he was purchasing one [coin] for him and one for [Marini]." (Marini 12/31/09 Depo. at 8:3-18.) According to Marini, Adamo "constantly reminded [Marini] of the security of the investment," told Marini that he could "liquidate within 24 to 48 hours," and stated that he "would never put [Marini] into coins that [Adamo] wouldn't put himself into." (Marini 12/31/09 Depo. at 195:25-196:8.) On other occasions, Adamo "stressed [that the coins] were priced at dirt bottom, at the highest rarity," and that Adamo was "putting a collection together that would yield us a very good return at the end of our investment period." (Marini 12/31/09 Depo. at 184:18-24.) Marini also testified that Adamo told him during at least one conversation that Marini
Furthermore, throughout the course of their dealings, Adamo periodically would send Marini statements that reflected the purchase prices and current values of the coins in Marini's portfolio. (Marini 12/31/09 Depo. at 40:16-21; 67:9-11.) Most of these statements showed "no loss" on a single coin, although there were some coins that apparently showed a loss in value. (Id. at 40:22-41:11.) Marini testified, however, that he did not know whether those losses were "due to a loss or due to a typo or mistake." (Id. at 41:9-11.) Certain of these coin statements were given to Marini in-person (id. at 165:8-11), while others were sent via e-mail. (Marini Decl. Ex. A at PL003855-57, PL003868-70, PL003881-83, PL003904-08.)
In February 2006, Marini had a meeting with Adamo where the two discussed the topic of published price guides for coins. (Marini 12/31/09 Depo. at 54:15-22.) Prior to that meeting, Marini had purchased a copy of the "Red Book," which contains "coin descriptions, populations," and prices, and he was "having trouble" matching up the coins on his yearly statements with the coins that were listed in the book, although he "might have found one coin" for which his purchase price was "close to the price" listed in the Red Book. (Id. at 54:23-55:14, 57:14:18.) When Marini asked Adamo about the Red Book, however, Adamo "dismissed it immediately," and explained that "a lot of the information that was in that book wasn't from current information" and was not specific to Adamo's or Marini's portfolio because "you wouldn't necessarily see that kind of quality rarity [sic] listed publicly in that book." (Id. at 59:6-21.) Marini accepted Adamo's explanation and "continued our conversation." (Id. at 59:19-21.)
In May 2007, Marini stopped purchasing coins from Adamo because Marini did not have additional, available funds at that time. (Marini 6/25/07 Depo. at 70:10-17; Marini 12/31/09 Depo. at 112:18-113:25.) Accordingly, Marini informed Adamo that he "needed to cash out of roughly a million dollars worth of coins from the coin portfolio." (Marini 12/31/09 Depo. at 113:20-25.) Although it is not entirely clear from the record, it appears that Adamo paid Marini one million dollars in exchange for three coins in early June 2007. (Id. at 113:20-115:4; Marini Decl. Ex. A, PL003718.) Marini reported that Adamo had valued these coins at double what Marini had paid for them. (Marini 12/31/09 Depo. at 116:15-19.) Shortly thereafter, Marini informed Adamo that he needed to cash out of more coins, and Adamo responded that he had a buyer for two coins and would be able to pay Marini "in 60-90 days." (Marini 12/31/09 Depo. at 115:6-9; Marini Decl. Ex. A, PL003718.) Adamo's response surprised Marini, because Marini felt that Adamo was contradicting his earlier promises that Marini could liquidate his coins in twenty-four to forty-eight hours. (Marini 12/31/09 Depo. at 115:6-16.) Ultimately, Adamo bought coins back from Marini for a total of $2.54 million. (Marini Decl. ¶ 9; H. Edward 12/22/09 Depo. at 232:15-20.) For other coins that Marini wished to sell, Adamo apparently proposed trades instead. (Marini 12/31/09 Depo. at 157:16-18; see, e.g., Marini Decl. Ex. A, PL003807 ("I HAVE YOUR 120K CHECK AND THE TRADE COIN READY WHEN YOU IS [sic].").)
(Id. at 61:13-62:3.) After Adamo asked Marini whether they were "going there again," Marini explained that he had "just converted my nest egg into this coin investment" and that he was not able to see any kind of correlation between his coins and the information in the Gray Book. (Id. at 62:3-15.) In response, Adamo reiterated his previous assurances, noting that the coins he and Marini had were "the top 1 percent" and that "customers that [Adamo] ha[d] known for over 20 years haven't been able to accomplish what [Adamo and Marini had] accomplished in the past six years." (Id. at 62:19-24.)
Thereafter, in or around May 2008, Marini gave Adamo one of his "Stella" coins to be sent out for "upgrading," meaning that Adamo would try to obtain a higher grade or a star for the coin from a coin grading service. (Adamo 6/23/09 Depo. at 287:12-288:15; see also Marini Decl. Ex A, PL003796, PL003798.) In the subsequent months, Marini sent several follow-up emails to Adamo asking when the Stella would be returned. (Marini Decl. Ex. A., PL003834, PL003840, PL003852.) Adamo initially responded to Marini's emails that the coin would be shipped back within a week, but by September 5, 2008, Adamo reported that the Stella was "there being reholder [sic]." (Marini Decl. Ex. A, PL003837, PL003841, PL003842, PL003855.) The following week, on September 12, 2008, Adamo emailed Marini that the Stella would be "back in 7/8 days." (PL003879.) Plaintiffs claim, however, that Adamo did not, in fact, send the coin out for upgrading and instead sold it without Marini's permission. (Pls.' Opp. at 17.) In support of this claim, plaintiffs point to a receipt of purchase that purportedly indicates Adamo sold a Stella coin of the same type, year and grade as Marini's, and with the same unique serial number, in May 2008. (Id. (citing SAC Ex. Y.).) Nevertheless, in contrast to plaintiffs' claims, Adamo has apparently returned a coin to Marini that Adamo claims is Marini's Stella coin. (Id.; see also SAC Ex. YY.)
In any event, in May 2008, around the time that Marini gave the Stella coin to Adamo for upgrading, Marini began to suspect that he was being defrauded by Marini. (Defs.' 56.1 ¶ 21.) In particular, Marini testified that:
(Marini 12/31/09 Depo. at 156:16-23.) Consequently, in late May, Marini took some of his coins to another dealer for evaluation. (Id. at 156:4-7; 166:4-8.) In addition, in June 2008, Marini began to surreptitiously tape record his conversations with Adamo. (Defs.' 56.1 ¶ 21.) Finally, in July 2008, Marini retained his attorney in this action. (Id.)
Plaintiffs also allege that defendants defrauded other victims in a similar manner. Specifically, plaintiffs point to three other purported identified victims: Frank Brancato, another close family friend of the Marinis and the Adamos; Travis Bain, a former customer who had purchased between twenty-five and fifty coins from H. Edward; and David Albanese, whom Adamo refused to pay for a coin until Adamo was threatened with police action. In particular, plaintiffs claim that Brancato was targeted in a similar fashion to Marini, in that Brancato purchased coins from Adamo after Adamo gave repeated assurances about the profitability of coin investments. (Pls.' Opp. at 18-20; Brancato 12/29/09 Depo. at 44:18-20, 47:2-48:21.) Unlike Marini, however, Brancato ultimately was able to sell his coins back to Adamo for a profit. (Pls.' Opp. at 20 (citing Harris Decl. Ex. Q at FRANK000833, 836).) As to Travis Bain, plaintiffs assert that Bain was injured when Adamo sold him coins that plaintiffs allege were fraudulently overgraded, a fact that Bain learned only when he sold his coins through a major auction house at prices lower than Bain thought he would realize.
The standards for summary judgment are well settled. Pursuant to Federal Rule of Civil Procedure 56(a), a court may only grant a motion for summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The moving party bears the burden of showing that he or she is entitled to summary judgment. See Huminski v. Corsones, 396 F.3d 53, 69 (2d Cir.2005). "A party asserting that a fact cannot be or is genuinely disputed must support the assertion by: (A) citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials; or (B) showing
Once the moving party has met its burden, the opposing party "`must do more than simply show that there is some metaphysical doubt as to the material facts. . . . The nonmoving party must come forward with specific facts showing that there is a genuine issue for trial.'" Caldarola v. Calabrese, 298 F.3d 156, 160 (2d Cir.2002) (emphasis in original) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). As the Supreme Court stated in Anderson, "[i]f the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505 (internal citations omitted). Indeed, "the mere existence of some alleged factual dispute between the parties" alone "will not defeat an otherwise properly supported motion for summary judgment." Id. at 247-48, 106 S.Ct. 2505 (emphasis in original). Thus, the nonmoving party may not rest upon mere conclusory allegations or denials but must set forth "`concrete particulars' showing that a trial is needed." R.G. Grp., Inc. v. Horn & Hardart Co., 751 F.2d 69, 77 (2d Cir. 1984) (quoting SEC v. Research Automation Corp., 585 F.2d 31, 33 (2d Cir.1978)). Accordingly, it is insufficient for a party opposing summary judgment "`merely to assert a conclusion without supplying supporting arguments or facts.'" BellSouth Telecomms., Inc. v. W.R. Grace & Co., 77 F.3d 603, 615 (2d Cir.1996) (quoting Research Automation Corp., 585 F.2d at 33).
Defendants have moved for partial summary judgment on plaintiffs' securities fraud and RICO claims, and on plaintiffs' state-law fraud, breach of contract, and New York General Business Law § 349 claims. For the reasons set forth herein, defendants' motion is denied with respect to the securities fraud, RICO, and state-law fraud and breach of contract claims. Defendants' motion is granted, however, with respect to plaintiffs' General Business Law claim.
Section 10(b) of the Securities Exchange Act of 1934 ("the Exchange Act") makes it unlawful "[t]o use or employ, in connection with the purchase or sale of any security. . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [Securities Exchange] Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors." 15 U.S.C. § 78j(b). In order to state a claim for securities fraud under this Section, the transaction at issue must involve a "security," as defined in Section 2(1) of the Securities Act of 1933, 15 U.S.C. § 77b(a)(1). Although Section 77b(1) sets forth numerous different instruments that may be considered securities, the parties agree that the only category that applies here is that of "investment contract."
In SEC v. Howey, 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946), the Supreme Court defined "investment contract" to mean "a contract, transaction or scheme whereby a person [1] invests his money [2] in a common enterprise and [3] is led to expect profits [4] solely from the efforts of a promoter or third party. . . ." Id. at 298-99, 66 S.Ct. 1100; accord United States v. Leonard, 529 F.3d 83, 88 (2d Cir.2008); Revak v. SEC Realty Corp., 18 F.3d 81, 87 (2d Cir.1994). The Supreme Court also added a fifth requirement in Marine Bank v. Weaver, 455 U.S. 551, 102 S.Ct. 1220, 71 L.Ed.2d 409 (1982), namely, that "for an instrument to be a security the investor must risk loss." Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 756 F.2d 230, 239 (2d Cir. 1985). Defendants do not dispute, for purposes of their motion, that plaintiff can satisfy the first, third, fourth, and fifth prongs of the Howey test. Instead, defendants focus solely on the second prong and contend that plaintiffs cannot establish the existence of a "common enterprise" in this case.
Courts have applied several different tests to determine whether a common enterprise exists, namely: the horizontal commonality test, the broad vertical commonality test, and the narrow or strict vertical commonality test. Revak, 18 F.3d at 87-88. Horizontal commonality involves "the tying of each individual investor's fortunes to the fortunes of the other investors by the pooling of assets, usually combined with the pro-rata distribution of profits." Id. at 87. Vertical commonality, in contrast, "focuses on the relationship between the promoter and the body of investors," rather than on the sharing or pooling of funds among investors. Id. Under the broad vertical commonality test, "the fortunes of the investors need be linked only to the efforts of the promoter," while "[s]trict vertical commonality requires that the fortunes of investors be tied to the fortunes of the promoter." Id. at 88 (emphasis in original) (internal quotation marks and citations omitted). It is undisputed that horizontal commonality does not exist in this case. In addition, the Second Circuit has held that a showing of broad vertical commonality does not satisfy the second prong of the Howey test. Id. ("If a common enterprise can be established by the mere showing that the fortunes of investors are tied to the efforts of the promoter, two separate questions posed by Howey — whether a common enterprise exists and whether the investors'
To support a finding of strict vertical commonality, a plaintiff must establish that "`the fortunes of plaintiff and defendants are linked so that they rise and fall together.'" Jordan (Bermuda) Inv. Co., Ltd. v. Hunter Green Invs. Ltd., 205 F.Supp.2d 243, 249 (S.D.N.Y.2002) (quoting Dooner v. NMI Ltd., 725 F.Supp. 153, 159 (S.D.N.Y.1989)); accord In re J.P. Jeanneret Assocs., Inc., 769 F.Supp.2d 340, 360 (S.D.N.Y.2011) (where investment manager was to be paid, in part, through a performance fee equal to 20% of the profits in the investment account, defendant's compensation was "dependent on the successful performance of the investment account" and strict vertical commonality accordingly existed because "[i]f profits were not generated in a calendar year, or if the profits did not exceed the preferred return, then [defendant] did not receive a performance fee" and therefore "financial compensation was linked to the fortunes of the investors"); Walther v. Maricopa Intern. Inv. Corp., No. 97-cv-4816, 1998 WL 186736, at *7 (S.D.N.Y. Apr. 17, 1998) (finding that "success of [plaintiff's] investments were directly tied to the fortunes of the defendants" and strict vertical commonality therefore existed where defendants "were to be paid only if [plaintiff's] funds made substantial gains," and "[c]onsequently, if [plaintiff's] funds appreciated in value, the defendants were financially compensated," whereas "if [plaintiff's] investment did not perform well, the defendants were not paid" (internal quotation marks omitted)). Stated otherwise, strict vertical commonality exists where there is a "one-to-one relationship between the investor and investment manager" such that there is "an interdependence of both profits and losses of the investment." Kaplan v. Shapiro, 655 F.Supp. 336, 341 (S.D.N.Y. 1987) (emphasis in original); see also Lowenbraun v. L.F. Rothschild, Unterberg, Towbin, 685 F.Supp. 336, 341 (S.D.N.Y. 1988) (noting that "[v]ertical commonality is present when there is interdependence between broker and client for both profits and losses of the investment" and holding that plaintiff had not established vertical commonality because "profits and losses were not interdependent since the broker allegedly profited from the commissions while plaintiffs suffered losses"); Savino v. E.F. Hutton & Co., Inc., 507 F.Supp. 1225, 1238 (S.D.N.Y.1981) ("It is plain enough
Defendants have moved for summary judgment on plaintiffs' securities fraud claim on the ground that plaintiffs have failed to establish that Adamo's sale of coins to Marini constituted an "investment contract" for purposes of the federal securities laws. Specifically, defendants contend that plaintiffs cannot satisfy the strict vertical commonality element of the Howey test. In opposition, plaintiffs argue that they can establish the requisite level of commonality in one of two ways: first, plaintiffs contend that their purchase of the same coins as defendants would make their fortunes rise and fall together from owning identical property, and, second, plaintiffs assert that because Adamo earned a percentage commission on plaintiffs' eventual sale of coins, Adamo's fortunes necessarily would rise and fall with the value of plaintiffs' coin portfolio. (Pls.' Opp. at 25.) For the reasons set forth herein, the Court finds that there are disputed issues of material fact that preclude the Court from granting summary judgment on this issue, and, accordingly, defendants' motion for summary judgment on the securities fraud claim is denied.
As an initial matter, the Court disagrees with plaintiffs that Adamo and Marini's ownership of the same types of coins necessarily links their fortunes together for purposes of the strict vertical commonality analysis. First, although Adamo and Marini may have owned similar sets of coins, and their portfolios might therefore have been valued similarly, it is clear from the record that Adamo and Marini maintained separate portfolios. Indeed, Marini acknowledged at his deposition that he understood that Adamo was purchasing two of each proposed coin: one for Marini's portfolio and one for Adamo's. (Marini 12/31/09 Depo. at 8:12-18 ("[W]hen Mr. Adamo called me and told me that he had coins that he procured for us, he said these are great for our portfolios, so every time he used it in the context of us and our and all that he led me to believe that he was purchasing one for him and one for me." (emphasis added)).) Moreover, in a recorded conversation, Adamo explained to Marini that, while Adamo viewed their portfolios similarly, their portfolios were not identical in that Adamo owned certain coins that Marini did not: "I may have two of something where you have one. I may have four of something and you have three. You know, a few odds and ends that I have because I liked that I wouldn't recommend to you for investment. . . ." (Marini Decl. Ex. A, PL001123.)
Most important, Adamo was under no obligation to sell his coins at the same time that Marini sold his (Defs. 56.1 ¶ 9); in other words, Adamo was free either to sell his coins before Marini, if an opportunity arose, or to hold onto his coins longer to capitalize on any long-term appreciations in value. Accordingly, while the valuation of their portfolios may have paralleled one another given their similar contents, and any deal that Adamo found could have affected the prices of the coins that Adamo
Indeed, the cases cited by plaintiffs to support their argument are all distinguishable from this case. For example, although the plaintiffs in Howey had purchased separate parcels of land in a citrus grove — just as Marini and Adamo had purchased separate coins here — the transactions were transformed into "investment contracts" not because of the ownership of separate parcels, but instead because plaintiffs had been "offer[ed] an opportunity to contribute money and to share in the profits of a large citrus fruit enterprise managed and partly owned by respondents." 328 U.S. at 299, 66 S.Ct. 1100. The Second Circuit has interpreted Howey to mean that "[a] common enterprise within the meaning of Howey can be established by a showing of `horizontal commonality': the tying of each individual investor's fortunes to the fortunes of the other investors by the pooling of assets, usually combined with the pro-rata distributions of profits." Revak, 18 F.3d at 87. Here, in contrast, Adamo was not offering Marini the opportunity to contribute funds and share in the profits of a coin portfolio that would be managed by Adamo. Indeed, it is undisputed that horizontal commonality is not present in this case. Accordingly, the fact that plaintiffs in Howey
Furthermore, the Second Circuit's opinion in Glen-Arden Commodities v. Costantino, 493 F.2d 1027 (2d Cir.1974), is also inapposite insofar as the Second Circuit primarily was focused in that case on the importance of the promoter's efforts, a factor that relates not to the common enterprise prong of the Howey test, but instead to the fourth prong (i.e., that the profits be derived solely from the efforts of a promoter or third party), which is not at-issue in this case. See id. at 1035 ("Here the customer, . . . while purchasing actual tangible property, was upon the representations of appellants buying in addition services absolutely necessary to the turning of the promised profit. . . . An investor was dependent upon appellants for the utilization of their `expertise in selecting the type and quality of Scotch whisky and casks to be purchased'. . . . This brings this scheme within the facts of a long line of cases where purported sales of tangible property, service contracts, or both were held to be investment contracts. There have been many schemes, in short, where the public was led into buying what purported to be tangible items when in fact what was being sold was an investment entrusting the promoters with both the work and the expertise to make the tangible investment pay off." (internal citations and alterations omitted)).
As to plaintiff's second theory of commonality, the Court finds that disputed issues of material fact exist as to whether Adamo earned commissions on the sale of Marini's coins and, accordingly, the Court
In this case, plaintiffs assert that Adamo "retain[ed] a percentage commission on each eventual sale" of Marini's coins. (Pls.' Opp. at 29.) Accordingly, because Adamo asked that Marini sell his coins only through Adamo (Marini 12/31/09 Depo. at 5:21-7:3), if Adamo were to receive a commission on the sale of the coins, his fortunes would be inextricably tied to those of Marini's. However, the record is not clear as to whether Adamo did, in fact, receive a commission based on the sale of coins. As described by Marini, when Marini asked Adamo how Adamo would be making money and what the structure of the deals was, Adamo responded that "[h]e would be making between 5 and 10 percent, depending on what coin." (T & R 12/23/09 Depo. at 290:15-22.) It is not clear from this testimony, however, whether this percentage commission would be earned at the time of purchase or at the time of sale. Moreover, Marini indicated elsewhere in his deposition that Adamo's commission was earned at the time of purchase and that the benefit Adamo received at the time of sale was the availability of Marini's coins to market to other potential customers:
(Marini 12/31/09 Depo. at 30:12-31:3.) Although this testimony establishes that Adamo definitely earned a commission at the time of purchase, it does not rule out the possibility that Adamo could also have earned a commission at the time of sale. Because a finding of strict vertical commonality
Defendants also move for summary judgment on plaintiffs' RICO claim on the grounds that plaintiffs cannot establish either the continuity necessary to establish a RICO pattern of racketeering activity, or that their injuries were caused by defendants' alleged RICO predicate acts. Defendants also argue that plaintiffs are unable to demonstrate that defendants Lisa Adamo or The Bolton Group are part of any RICO enterprise. For the reasons set forth below, the Court denies defendants' motion.
To establish a RICO violation, a plaintiff "must plead at least two predicate acts, 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, 109 S.Ct. 2893, 106 L.Ed.2d 195 (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, 109 S.Ct. 2893). As to the threat of continued criminal activity, "a plaintiff in a RICO action must allege either an `open-ended' pattern of racketeering activity (i.e., past criminal conduct coupled with a threat of future criminal conduct) or a `closed-ended' pattern of racketeering activity (i.e., past criminal conduct `extending over a substantial period
H.J. Inc., 492 U.S. at 241-43, 109 S.Ct. 2893 (emphasis in original).
"To satisfy open-ended continuity, the plaintiff . . . must show that there was a threat of continuing criminal activity beyond the period during which the predicate acts were performed." Cofacredit, S.A. v. Windsor Plumbing Supply Co., 187 F.3d 229, 242 (2d Cir.1999). Alternatively, to establish a "closed period of repeated conduct" sufficient to satisfy the continuity requirement, H.J., Inc., 492 U.S. at 241, 109 S.Ct. 2893, "`a plaintiff must provide some basis for a court to conclude that defendants' activities were neither isolated nor sporadic,'" and that defendants engaged in such activity for a substantial period of time. De Falco v. Bernas, 244 F.3d 286, 321 (2d Cir.2001) (quoting GICC Capital Corp., 67 F.3d at 467 (additional quotation marks omitted)); accord Kades v. Organic Inc., No. 00-CV-3671 (LTS), 2003 WL 470331, at *11, 2003 U.S. Dist. LEXIS 2591, at *35 (S.D.N.Y. Feb. 24, 2003). "Predicate acts extending over a few weeks or months . . . do not satisfy this requirment." Cofacredit, 187 F.3d at 242 (quoting H.J., Inc., 492 U.S. at 242, 109 S.Ct. 2893). In calculating the duration of the pattern of racketeering activity, actions that do not constitute predicate racketeering activity are not included; rather, the duration "is measured by the RICO predicate acts the defendants commit." De Falco, 244 F.3d at 321 (citing Cofacredit, 187 F.3d at 243 and GICC Capital Corp., 67 F.3d at 467). Notably, "[s]ince the Supreme Court decided H.J., Inc., [the Second Circuit] has never held a period of less than two years to constitute a `substantial period of time'" for purposes of closed-ended continuity. De Falco, 244 F.3d at 321. Furthermore "[w]hile closed ended continuity is primarily concerned with the time period of the activities, the court also considers factors such as the `number and variety of predicate acts, the number of both participants and victims, and the presence of separate schemes' as relevant when determining whether closed ended continuity exists." SKS Constructors, Inc. v. Drinkwine, 458 F.Supp.2d 68, 78 (E.D.N.Y.2006) (quoting De Falco, 244 F.3d at 321).
Here, the Court finds that plaintiffs have put forth sufficient factual allegations regarding the existence of closed-ended continuity to survive a motion for summary judgment. Specifically, plaintiffs allege that defendants defrauded them over the course of approximately six years, during which time plaintiffs purchased 144 coins from defendants for a total alleged loss of approximately $14.5 million. Courts have routinely found that continuity exists where the alleged scheme spans such a substantial period of time, even
Indeed, the Second Circuit has stressed that "[w]hether closed-ended or open-ended, continuity is `centrally a temporal concept,'" and "[a]lthough GICC identified several `non-dispositive factors' that courts must consider in assessing whether closed-ended continuity has been established, 67 F.3d at 467, those factors are more significant in cases where the period of time over which the alleged racketeering acts borders on `substantial.'" Fresh Meadow Food Servs., LLC v. RB 175 Corp., 282 Fed.Appx. 94, 99 (2d Cir.2008) (quoting H.J., Inc., 492 U.S. at 242, 109 S.Ct. 2893). Accordingly, in Fresh Meadow, the Second Circuit found that continuity existed where the alleged racketeering acts spanned almost three and one-half years and, thus, "the presence or absence of the other factors
Moreover, as to the other non-dispositive factors that are relevant to the continuity analysis, the Court concludes that, after construing the evidence and drawing all reasonable inferences in plaintiffs' favor, these factors, on balance, preclude the Court from granting summary judgment for defendants. Specifically, plaintiffs here have alleged over 100 predicate acts of mail and wire fraud
RICO provides a private cause of action for "[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter." 18 U.S.C. § 1964(c). "From this language, courts have extracted the conditions a plaintiff must meet to satisfy RICO's standing requirements: (1) a violation of section 1962; (2) injury to business or property; and (3) causation of the injury by the violation." First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 767 (2d Cir.1994) (internal quotation marks and citation omitted). As to the causation element, "the compensable injury flowing from a RICO violation necessarily is the harm caused by the predicate acts." Hemi Grp., LLC v. City of New York, N.Y., ___ U.S. ___, 130 S.Ct. 983, 991, 175 L.Ed.2d 943 (2010) (internal quotation marks, alterations, and citation omitted). To establish that a predicate act caused the harm alleged, a plaintiff must make
Plaintiffs allege that Adamo carried out his scheme through numerous purported acts of mail and wire fraud that allegedly occurred between 2002 and 2008. (See generally Predicates Catalog.) In particular, plaintiffs have alleged that Adamo engaged in fifty-five acts of mail fraud and 135 acts of wire fraud. (Id.) Defendants, however, contend that plaintiffs cannot prove that their injuries were caused by these predicate acts.
As an initial matter, the Court disagrees with plaintiffs that they need not show that the predicate acts themselves caused their injuries. (See Pls.' Opp. at 66-72.) As noted supra, the Supreme Court plainly stated in Hemi Group that "the compensable injury flowing from a RICO violation necessarily is the harm caused by the predicate acts." 130 S.Ct. at 991 (emphasis added) (internal quotation marks, alterations, and citation omitted); see also id. at 989 ("[T]o state a claim under civil RICO, the plaintiff is required to show that a RICO predicate offense `not only was a `but for' cause of his injury, but was the proximate cause as well.'" (quoting Holmes, 503 U.S. at 268, 112 S.Ct. 1311) (emphasis added)). Nevertheless, despite plaintiffs' misstatement of the law, the Court concludes that plaintiffs have presented sufficient evidence regarding their wire fraud allegations and their mail fraud allegations concerning the alleged confiscation of the Stella coin to survive summary judgment. However, the Court also concludes that plaintiffs cannot establish that the remaining alleged acts of mail fraud were the proximate cause of their injuries, and, therefore, plaintiffs are precluded from relying upon these acts to prove causation. Moreover, the Court concludes that any acts of alleged wire fraud that are based on intrastate communications fall outside the scope of RICO.
First, as to plaintiffs' mail fraud allegations, all but five of the purported acts of mail fraud involved either Adamo's receipt
As to the alleged acts of wire fraud, plaintiffs acknowledge that four faxes allegedly sent from Adamo to Marini were all sent and received in New York State. (Defs. 56.1 ¶ 26.) Accordingly, because intrastate communications fall outside the scope of RICO, Cofacredit, 187 F.3d at 243, plaintiffs may not rely upon these faxes in support of their RICO claim. Plaintiffs' remaining wire fraud allegations relate to payments made to defendants by plaintiffs, requests by defendants for such payments, and various communications between Adamo and Marini. As to the payment-related acts, defendants argue that these acts did not cause plaintiffs' injuries because these payments often were made after Adamo and Marini had agreed upon a price for the coin transaction in question. Conversely, defendants also argue that certain communications that contained proposals for deals cannot be the proximate cause of plaintiffs' injuries because those deals were only agreed to "after further conversation." (Defs. Mem. of Law at 39.) The Court disagrees with defendants' reasoning. As a threshold matter, even assuming that certain payments and requests for payments were made after price negotiations had occurred and a price had been finalized, these payments,
Plaintiffs also rely upon communications between Adamo and Marini that did not either result in or represent the culmination of specific coin transactions and, instead, involved proposed deals that may not have come to fruition, statements by Adamo to induce deals, fraudulently misrepresented coin values, or other fraudulent assurances by Adamo regarding the viability of the coin transactions. As with plaintiffs' other wire fraud allegations, a reasonable jury could conclude that these communications induced plaintiffs to continue making payments to defendants and to otherwise continuing transacting with defendants, not only by purchasing coins but also by giving Adamo possession of the Stella coin in May 2008 for regrading. Accordingly, accepting plaintiffs' evidence as true and drawing all reasonable inferences in plaintiffs' favor, the Court cannot conclude, as a matter of law, that plaintiffs are unable to establish that the alleged acts of wire fraud proximately caused their injury. Therefore, defendants' motion for summary judgment on this ground is denied.
A RICO enterprise under Section 1961(4) 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." 18 U.S.C. § 1961(4). An association-in-fact enterprise is "a group of persons associated together for a common purpose of engaging in a course of conduct" which is "proved by evidence of ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit." United States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981). Where a complaint alleges an association-in-fact enterprise, courts in this Circuit look to the "hierarchy, organization, and activities" of the association to determine whether "its members functioned as a unit." First Capital Asset Mgmt. v. Satinwood, Inc., 385 F.3d 159, 174 (2d Cir.2004) (citations and quotation marks omitted).
The Second Circuit has made clear that "the person and the enterprise referred to must be distinct," and, therefore, "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). However, "[t]his does not foreclose the possibility of a corporate entity being held liable as a defendant under section 1962(c) where it associates with others to form an enterprise that is sufficiently distinct from itself." Id. (emphasis added). Thus, "a defendant may be a RICO person and one of a number of members of the RICO enterprise." Id. (internal quotation marks omitted). Furthermore, an employee of a corporation is legally distinct from the corporation itself and therefore can function as a RICO person where the corporation is the alleged RICO enterprise. See Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 163, 121 S.Ct. 2087, 150 L.Ed.2d 198 (2001).
Here, plaintiffs have asserted that Adamo is the RICO person and that Adamo together with The Bolton Group is the enterprise. Defendants argue that, despite Bolton's incorporation under the laws of the New York, Bolton is not sufficiently separate and distinct from Adamo for it to be part of a RICO enterprise with Adamo.
533 U.S. at 163, 121 S.Ct. 2087 (internal quotation marks and citations omitted). Furthermore, the fact that the individual defendant was the sole owner of the corporation did not change the Court's conclusion:
Id. (citations omitted). Similarly, in this case, plaintiffs have alleged that a corporate employee (Adamo) is the "person" and the corporation, with Adamo, is the "enterprise." The fact that Bolton was co-owned and controlled by Adamo and that Bolton did not have a website, email address, or phone number are not controlling here, where it is undisputed that Bolton has been incorporated as legally separate identity from Adamo. Indeed, defendants have not presented a single case to support their argument that Bolton is not sufficiently distinct from Adamo, despite Bolton's incorporation under the laws of the State of New York.
Defendants have also moved for summary judgment on plaintiffs' claims for common law fraud, breach of contract, and violations of New York General Business Law § 349. For the reasons set forth infra, the Court grants defendants' motion with respect to the General Business Law claim, but denies the motion with respect to the fraud and breach of contract claims.
Defendants have moved for summary judgment on plaintiffs' fraud claim to the extent that this claim seeks punitive damages. Specifically, defendants argue that plaintiffs' case is, in actuality, premised on a contractual agreement between Adamo and Marini "under which Adamo would choose coins for Marini to buy at their current value plus a 5% to 10% commission," (Defs.' Reply at 40), and that, as such, plaintiffs' punitive damages claim must be dismissed, because punitive damages are not available in breach of contract cases without a requisite showing of fraud aimed at the public generally, a showing that defendants contend plaintiffs are unable to make here. (See Defs.' Mem. of Law at 53-54; Defs.' Reply at 40-43.)
As an initial matter, the Court notes that defendants have correctly pointed to a line of cases under New York law which have held that punitive damages are not available for fraud claims arising from a contractual relationship between the parties. See Rocanova v. Equitable Life Assur. Soc'y, 83 N.Y.2d 603, 612 N.Y.S.2d 339, 634 N.E.2d 940, 943 (1994) ("Punitive damages are not recoverable for an ordinary breach of contract as their purpose is not to remedy private wrongs but to vindicate public rights."); see generally United States ex rel. Evergreen Pipeline Constr. Co. v. Merritt Meridian Constr. Corp., 95 F.3d 153, 160-61 (2d Cir.1996) ("Generally,
New York General Business Law § 349 prohibits "[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service." N.Y. G.B.L. § 349(a) (McKinney's 2004); accord Securitron Magnalock Corp. v. Schnabolk, 65 F.3d 256, 264 (2d Cir.1995). Under this provision, "the gravamen of the complaint must be consumer injury or harm to the public interest," and, as such, "[t]he critical question . . . is whether the matter affects the public interest in New York, not whether the suit is brought by a consumer or a competitor." Securitron Magnalock, 65 F.3d at 264 (internal quotation marks and citation omitted). Accordingly, to state a claim under Section 349, a plaintiff must allege, inter alia, "that defendants engaged in a consumer-oriented act," a requirement that "has been construed liberally." New York v. Feldman, 210 F.Supp.2d 294, 301 (S.D.N.Y.2002) (internal quotation marks and citations omitted). "Based on this standard, courts have found sufficient allegations of injury to the public interest where plaintiffs plead repeated acts of deception directed at a broad group of individuals." Id. (collecting cases).
In this case, plaintiffs have proffered no evidence that defendants' scheme was aimed at the public generally. For example, plaintiffs have not put forth any evidence that defendants maintained a website, circulated marketing materials, or made other efforts to make misrepresentations to the public generally, or even to a broad group of people. In the absence of any allegations or factual proof that defendants' engaged in consumer-oriented activity within the meaning of the statute, plaintiffs cannot survive defendants' motion for summary judgment on this claim. Accordingly, plaintiffs' General Business Law § 349 claim is dismissed.
Defendants argue that plaintiffs' breach of contract claim must be dismissed because plaintiffs' have not produced sufficient evidence of their damages. Specifically, defendants' contend that plaintiffs' expert's sworn statement that, because of market fluctuations, "many of the coins. . . [in plaintiffs'] collection may have a current market value that is below their peaks of just a few years ago," (Parrella Decl. Ex. A at 2) is insufficient to create a triable issue of fact. The Court, however, disagrees and finds that defendants' argument would require the Court to make credibility determinations regarding plaintiffs' expert's testimony that are not appropriate on a motion for summary judgment.
For the reasons set forth herein, defendants' motion for summary judgment is denied with respect to plaintiffs' securities fraud, RICO, and state-law fraud and breach of contract claims. Defendants' motion is granted, however, with respect to plaintiffs' General Business Law claim.
SO ORDERED.
533 U.S. at 164, 121 S.Ct. 2087.