Adee Motor Cars, LLC v. Amato

• Decision Date: 05 August 2005
• Docket Number: No. 00 CIV. 9635SCRGAY.,00 CIV. 9635SCRGAY.
• Citation: 388 F.Supp.2d 250
• Parties: ADEE MOTOR CARS, LLC, Monticello K-9, LLC, Plaintiffs v. John AMATO, Jim Fredericks, Fredericks Motors, Defendants John Amato, Counterclaim Plaintiff v. Adee Motor Cars, LLC, Monticello K-9, LLC, Sunset 17, LLC, Denise Gellis Counterclaim Defendants
• Court: U.S. District Court — Southern District of New York

388 F.Supp.2d 250

ADEE MOTOR CARS, LLC, Monticello K-9, LLC, Plaintiffs v. John AMATO, Jim Fredericks, Fredericks Motors, Defendants John Amato, Counterclaim Plaintiff v. Adee Motor Cars, LLC, Monticello K-9, LLC, Sunset 17, LLC, Denise Gellis Counterclaim Defendants

No. 00 CIV. 9635SCRGAY.

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

August 5, 2005.

COPYRIGHT MATERIAL OMITTED

Jan Ira Gellis, Gellis & Melinger, New York City, for Plaintiffs and Counterclaim Defendants.

R. Scott Thompson, Lowenstein Sandler PC, New York City, for Defendants and Counterclaim Plaintiff.

MEMORANDUM DECISION AND ORDER

ROBINSON, District Judge.

I. Background

Adee Motor Cars, LLC ("Adee") and Monticello K-9, LLC ("Monticello"; Adee and Monticello are collectively referred to herein as "Plaintiffs") commenced this action against John Amato ("Amato"), Jim Fredericks ("Fredericks") and Fredericks Motors ("Motors"; Amato, Fredericks and Motors are collectively referred to herein as "Defendants"), alleging that Amato and Fredericks acted as an enterprise in violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. In addition, the Plaintiffs have asserted three common law claims — breach of fiduciary duty, unjust enrichment and misrepresentation — that arise under New York state law.

Amato has also asserted four counterclaims, all of which also arise under New York state law, against Adee, Monticello, Sunset 17, LLC ("Sunset") and Denise Gellis ("Gellis"; Adee, Monticello, Sunset and Gellis are collectively referred to herein as "Counterclaim Defendants"). Specifically, Amato alleges that the Counterclaim Defendants oppressed his rights as a minority shareholder in Adee, wrongfully terminated his employment and withheld his proportionate share of rents from Sunset. In addition, Amato claims that Gellis breached her fiduciary duty to him by engaging in unlawful transactions involving various corporations.

Plaintiffs claim that Amato, while he was employed by Middletown Honda, a car dealership owned by Adee, conspired with Fredericks, another car dealer, to cause Adee to pay more than fair market value for used cars so that Amato and Fredericks could unlawfully profit from the difference in price. Plaintiffs also contend that, via his enterprise with Fredericks, Amato engaged in self-dealing and unjust enrichment, resulting in damages to plaintiffs.

In his counterclaim complaint, Amato claims that, in accordance with an oral agreement, he is a minority shareholder/owner of Adee, and that his rights as such were oppressed by Gellis and Adam Melec ("Melec"), who are the other two shareholders/owners of Adee. Amato further alleges that he was wrongfully terminated from his employment at Middletown Honda, that Gellis breached her fiduciary duty to other shareholders by engaging in unauthorized and suspicious loans and repayments concerning Adee and Monticello, and that he has not received disbursements from Sunset to which he is entitled because of the Counterclaim Defendants' fiduciary breach.

The Defendants filed a motion for summary judgment dismissing all counts in Plaintiffs' complaint. Amato also filed a motion for summary judgment on his first counter-claim. The Counterclaim Defendants filed a motion for summary judgment dismissing Amato's first, third and fifth counterclaims. These motions were referred to Magistrate Judge Yanthis for a Report & Recommendation.

On October 28, 2004 Judge Yanthis issued his report, recommending that Defendants' motion for summary judgment be granted, Plaintiffs' remaining claims be dismissed, and that Amato's counterclaims also be dismissed.

II. Analysis

A. Standard of Review

Summary judgment is appropriate only if "there is no genuine issue as to any material fact[.]" FED. R. CIV. P. 56(c). Summary judgment may not be granted unless "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Id.

In reviewing an R & R, a Court "may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1)(C). "To accept the report and recommendation of a magistrate, to which no timely objection has been made, a district court need only satisfy itself that there is no clear error on the face of the record." Nelson v. Smith, 618 F.Supp. 1186, 1189 (S.D.N.Y.1985) (citations omitted). See also Pizarro v. Bartlett, 776 F.Supp. 815, 817 (S.D.N.Y.1991) (court may accept report if it is "not facially erroneous"). However, a district court judge is required to make a de novo determination as to the aspects of the report and recommendation to which objections are made. 28 U.S.C. § 636(b)(1); United States v. Raddatz, 447 U.S. 667, 673-674, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980); United States v. Male Juvenile, 121 F.3d 34, 38 (2d Cir.1997). The Plaintiffs/Counterclaim Defendants objected in a timely fashion to Judge Yanthis' recommendations. The Defendants also objected to some, but not all, of Judge Yanthis' recommendations.

B. Judge Yanthis' Recommendations

In this case, Plaintiffs assert that defendants Amato and Fredericks engaged in an illegal enterprise to defraud Plaintiffs, and thus violated the RICO statute, 18 U.S.C. § 1962(c). As Judge Yanthis noted, proof of a RICO violation requires evidence of "at least two related predicate acts..., the last of which must have occurred within 10 years of a prior act of racketeering activity." Pinnacle Consultants v. Leucadia Nat'l Corp., 101 F.3d 900, 904 (2d Cir.1996) citing 18 U.S.C. § 1961(5).

Here, Plaintiffs allege that the relevant predicate acts are mail fraud and wire fraud. The mail and wire fraud statutes prohibit the use of those means of communication in furtherance of "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises." 18 U.S.C. §§ 1341, 1343. See also United States v. Slevin, 106 F.3d 1086, 1088 (2d Cir.1996) ("Because the [mail and wire fraud] statutes use the same relevant language, they are analyzed in the same way.").

Judge Yanthis found that there are no genuine issues of material fact regarding the issue of whether or not the defendants engaged in the predicate acts of mail and wire fraud. Specifically, Judge Yanthis found no evidence that Fredericks and Amato utilized the mails or wires to defraud, or that they were otherwise engaged in a "scheme to defraud" at all. As a result, Judge Yanthis recommended that the Defendants' motion for summary judgment on Plaintiffs' RICO claim should be granted.

Having recommended that the only federal claim in the case be dismissed, Judge Yanthis recommended that this court decline to exercise jurisdiction over Plaintiffs' remaining claims and Amato's counterclaims, all of which arise under New York state common law.

C. Objections

1. Plaintiffs'/Counterclaim Defendants' Objections

Plaintiffs argue that, contrary to Judge Yanthis' finding, there is adequate evidence in the record to create genuine issues of fact as to whether the Defendants were engaged in a scheme to defraud, and utilized mails or wires to further their scheme. Specifically, Plaintiffs argue that Judge Yanthis ignored several facts that raise questions as to whether there was a scheme to defraud and, by implication, whether Amato and Fredericks used the mails or wires to implement it.

With respect to the use of the mails or wires, Judge Yanthis noted that, although Fredericks conceded that he spoke with Amato often by telephone or cell phone, Fredericks testified that the calls were routine conversations in which he and Amato discussed the availability and price of used vehicles for Middletown Honda to purchase. Moreover, Judge Yanthis found that there was no evidence contradicting Fredericks' testimony on the issue of whether these conversations were anything but routine.

On the issue of the use of wires, however, Judge Yanthis' conclusion is unpersuasive. In order to establish a RICO claim based on mail or wire fraud, the telephone calls or mailings need not have contained misrepresentations themselves. See Moses v. Martin, 360 F.Supp.2d 533, 548 (S.D.N.Y.2004); Miltland Raleigh-Durham. v. Myers, 807 F.Supp. 1025, 1056 (S.D.N.Y.1992). Rather, plaintiffs must assert merely that the use of the mails or the wires was accomplished in furtherance of the scheme alleged, which was itself fraudulent. Moses, 360 F.Supp.2d at 548. It is the fraudulence of the scheme itself, not any individual falsehood in any particular mail or wire communication that must be alleged. See id. As such, summary judgment is not appropriate simply because there is no evidence that the conversations touched upon anything but the availability and prices of used vehicles. Since the alleged scheme involved the purchase of used vehicles, such "routine" conversations could very well have contributed to a fraudulent scheme.

Judge Yanthis also found that there were no genuine issues of fact regarding the issue of whether the Defendants were actually engaged in a scheme to defraud. Specifically, Judge Yanthis noted that that every check that Fredericks was given as payment for used vehicles was actually approved by the Plaintiffs, who never complained that the prices were too high. Moreover, Plaintiffs have concededly produced no proof that Amato was receiving kickbacks on the allegedly fraudulent transactions. On this issue, Judge Yanthis' analysis is persuasive.

In their objections, Plaintiffs essentially ask the court to find genuine issues of material fact by drawing inferences from the following various circumstances surrounding Amato's purchase of used cars on behalf of Plaintiffs: 1) Fredericks sold all the vehicles he purchased at auctions to the Plaintiffs;...