4 K&D Corp. v. Concierge Auctions, LLC

• Decision Date: 10 March 2014
• Docket Number: No. 13 Civ. 2527(JGK).,13 Civ. 2527(JGK).
• Citation: 2 F.Supp.3d 525
• Court: U.S. District Court — Southern District of New York
• Parties: 4 K & D CORPORATION, et al., Plaintiffs, v. CONCIERGE AUCTIONS, LLC, et al., Defendants.

2 F.Supp.3d 525

4 K & D CORPORATION, et al., Plaintiffs,

v.CONCIERGE AUCTIONS, LLC, et al., Defendants.

No. 13 Civ. 2527(JGK).

United States District Court, S.D. New York.

Signed March 10, 2014.

Joel Steven Schneck, Robert L. Rimberg, Goldberg & Rimberg, PLLC, New York, NY, for Plaintiffs.

Robert S. Wolf, Jordan Daniel Greenberger, Robert D. Lillienstein, Moses & Singer LLP, New York, NY, for Defendants.

OPINION AND ORDER

JOHN G. KOELTL, District Judge.

The plaintiffs, 4 K & D Corporation d/b/a Grand Estates Auction Company (“Grand Estates”), Deborah Jarol, and Sherwin Jarol ¹ bring this action alleging violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act, 18 U.S.C. § 1961 et seq., and New York General Business Law §§ 349 and 350. The plaintiffs also bring a claim for tortious interference with contractual and business relationships.

All of the claims arise out of the alleged fraudulent business conduct of defendants Concierge Auctions, LLC (“Concierge”), Laura Brady, George Graham, Michael Russo, CA Partners, LLC (“CA Partners”), Segue LLC (“Segue”), and Brady Hogan Investments, LLC (“BHI”). The action alleges that Concierge engaged in various false and deceptive practices to obtain customers for its business of conducting auctions for luxury homes, and that their practices damaged Grand Estates, which conducted a rival auction business. Also included as defendants are ten unnamed John/Jane Doe individuals and ten unnamed ABC Corporations. The current lawsuit also concerns actions of non-party Chad Roffers.

Because several claims arise under the RICO Act, and the state law claims are based on the same operative facts, jurisdiction is proper pursuant to 28 U.S.C. §§ 1331 and 1367. The defendants now move to dismiss the Amended Complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). The motion is granted in part and denied in part.

I.

In deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the complaint are accepted as true, and all reasonable inferences must be drawn in the plaintiff's favor. McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir.2007). The Court's function on a motion to dismiss is “not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally sufficient.” Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir.1985). The Court should not dismiss the complaint if the plaintiff has stated “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). While the Court should construe the factual allegations in the light most favorable to the plaintiff, “the tenet that a court must accept as true all of the allegations contained in the complaint is inapplicable to legal conclusions.” Id. When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the complaint, documents that the plaintiff relied on in bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir.2002).

II.

The Court accepts the plaintiff's allegations in the Amended Complaint as true for purposes of this motion to dismiss. Plaintiff Grand Estates and defendant Concierge are two auction houses directly competing against each other in the national market for luxury home auctions. (Am. Compl. ¶¶ 48–50.) Grand Estates is a North Carolina corporation in business since 1999 with its principal place of business in North Carolina, while Concierge is a Florida limited liability company formed in 2008 with its principal place of business in New York, New York. (Am. Compl. ¶¶ 16–17, 20–21). The alleged fraudulent conduct of Concierge involved actions of the other defendants named in the Amended Complaint and non-party Roffers.

Roffers was an original managing member of Concierge at its founding in 2008 and continues to be employed by and act as an officer of Concierge. (Am. Compl. ¶¶ 21, 27.) Roffers's wife and mother-in-law own 95% and 5% of CA Partners, respectively, and CA Partners owns 40% of Concierge. (Am. Compl. ¶¶ 23, 26.) ² From the formation of Concierge in 2008 until March 2012, Roffers was employed by CA Partners and worked for Concierge as an “independent contractor” with the title of “Head of Client Services.” (Am. Compl. ¶¶ 24, 25.)

Defendant Brady is the president of Concierge. (Am. Compl. ¶ 29.) Brady previously worked for Roffers as a real estate broker and served as vice president of marketing at Concierge. (Am. Compl. ¶¶ 30, 56.) Brady also owns defendant BHI, a Florida limited liability company; BHI replaced Brady as a member of Concierge as of January 2012. (Am. Compl. ¶¶ 32, 45, 46.)

Defendant Russo is the chief operating officer of Concierge. (Am. Compl. ¶ 35.) Russo also owns defendant Segue, a limited liability company that became a member of Concierge as of January 2012. (Am. Compl. ¶¶ 37, 45, 46.)

Defendant Graham was the chief executive officer of Concierge until 2012 and was a member of Concierge as of April 2010, April 2011, and January 2012. (Am. Compl. ¶¶ 34, 42–44.) Graham's interest in Concierge was subsequently bought out, and Graham is no longer employed by Concierge. (Am. Compl. ¶¶ 34, 47.)

The plaintiffs allege that the defendants fraudulently induced sellers of luxury real estate to enter into auction contracts with Concierge by making false promises and various misrepresentations about Concierge's auction results, sales statistics, and track records, and that the defendants engaged in other fraudulent conduct such as using shill bidders, allowing bids from unregistered bidders, and adding a reserve at the last minute. ( E.g. Am. Compl. ¶¶ 82–85, 87, 95–97, 114, 291–332.) As a result, Grand Estates was allegedly harmed because sellers chose Concierge instead of Grand Estates or other auction houses due to the defendants' misrepresentations to the sellers. (Am. Compl. ¶ 83.)

In addition, the plaintiffs allege that the defendants used the income from their fraudulent business practice to pay Realogy Services Group, LLC (“Realogy”) to promote Concierge's services through Realogy's subsidiary, Sotheby's International Realty (“SIR”). (Am. Compl. ¶¶ 55, 64, 66, 75, 381.) Prior to the formation of Concierge, Roffers owned Sky Sotheby, an SIR franchisee, which allegedly experienced difficulty in the market downturn in 2008, causing Roffers to be indebted to SIR. (Am. Compl. ¶¶ 53, 60.) During the same year, Concierge was formed. (Am. Compl. ¶ 21.) After Realogy terminated Sky Sotheby as a franchisee, Realogy entered into a Strategic Alliance Agreement with Concierge which named Concierge as Realogy's “preferred” auctioneer so that Concierge could perform auctions to pay back Roffers's debt to SIR. (Am. Compl. ¶¶ 61–63.) As a result of the agreement, SIR franchisees were instructed to refer their clients to Concierge for auction services. (Am. Compl. ¶¶ 66, 72.)

With respect to plaintiffs Sherwin Jarol and Deborah Jarol (“the Jarols”), the plaintiffs allege that the defendants made various misrepresentations through personal and wire communications, including statements about Concierge's experience and success rates as well as prospects for a successful sale. (Am. Compl. ¶¶ 155, 158, 161, 162, 164.) The Jarols then contracted with Concierge to auction their property. (Am. Compl. ¶ 166.) In addition, the agreement between the Jarols and Concierge required that a $100,000 “break-up fee” be placed into an escrow account to be released to Concierge if the Jarols chose to cancel the auction. (Am. Compl. ¶ 170.) After the defendants misrepresented to the Jarols the number of bidders, the auction did occur but no bids were received. (Am. Compl. ¶¶ 189–90, 192.) However, the defendants still caused the break-up fee to be released to Concierge. (Am. Compl. ¶ 203.) In addition, the plaintiffs allege that, contrary to the express direction of the Jarols, Concierge marketed the Jarols' property as a no-reserve auction and misled potential buyers that the Jarols were in financial distress and were motivated to sell. (Am. Compl. ¶¶ 173–74, 177, 207.) As a result, the Jarols allegedly suffered damages including loss of the $100,000 break-up fee and increased difficulty in subsequent attempts at selling their property. (Am. Compl. ¶¶ 116–50, 208–09.)

The plaintiffs allege that the defendants acted similarly in their handling of at least five other properties, including the propertyof former parties John Bloeser and Nancy Bloeser. The defendants allegedly made false representations to the owners of these properties regarding Concierge's past success and sales in order to be hired; the defendants also allegedly engaged in other fraudulent conduct such as supplying false bidder information. (Am. Compl. ¶¶ 116–50, 210–79.) In addition, the plaintiffs allege seven other instances in which sellers were in touch with Grand Estates but eventually contracted with Concierge because of the false representations by the defendants. (Am. Compl. ¶¶ 335–66.)

III.

The plaintiffs bring four claims under the RICO Act, 18 U.S.C. §§ 1962(a)-(d), 1964(c). Section 1964(c) provides that “[a]ny person injured in his business or property by reason of a violation of [18 U.S.C. § 1962] may sue therefor in any appropriate United States district court.” 18 U.S.C. § 1964(c). The claim for violation of § 1962(c) is asserted against defendants Graham, Russo, Brady, and CA Partners. Under § 1962(c),

[i]t shall be unlawful for...