Amusement Indus., Inc. v. Midland Ave. Assocs., LLC
| Decision Date | 27 September 2011 |
| Docket Number | No. 10 Civ. 5064(LAK)(GWG).,10 Civ. 5064(LAK)(GWG). |
| Parties | AMUSEMENT INDUSTRY, INC., Plaintiff, v. MIDLAND AVENUE ASSOCIATES, LLC; Stephen Stern; Joshua Shapiro (a/k/a Joshua Schapiro a/k/a Joshua Schapira); Payless Office Products Corp.; Joseph Niederman; Kesef Properties, Inc.; Benjamin Irwin LLC; SME International Associates, Inc. (a/k/a SME International Associates a/k/a SME Associates a/k/a SME International); Moses Stern (a/k/a Mark Stern); First Republic Group Corp.; Malke Malik, Tovia Malik, Matthew Solof, Does 4–10, inclusive, and XYZ Corp. 1–10, inclusive, Defendants. |
| Court | U.S. District Court — Southern District of New York |
OPINION TEXT STARTS HERE
Allen Phillip Sragow, Sragow & Sragow, Craig Harry Missakian, Westland Industries, Inc., Long Beach, CA, Elissa E. Koolyk, Elissa E. Koolyk, Esq., New York, NY, for Plaintiff.
Stephen R. Stern, Mark W. Geisler, Hoffinger Stern & Ross LLP, Sherri Lee Eisenpress, Nicole Haff, Reiss, Eisenpress and Sheppe LLP, New York, NY, Steven B. Lieberman, Law Office of Steven B. Lieberman, Somerville, NJ, for Defendants.
This matter is before the Court on the separate objections of plaintiff (DI 73) and the Mark Stern Defendants (DI 70) to the report and recommendation of Magistrate Judge Gabriel W. Gorenstein (the “R&R”) (DI 69) with respect to motions by Stephen Stern, the Mark Stern Defendants, and Joshua Shapiro and others (the “Other Defendants”) to dismiss the amended complaint.
The objections of the Mark Stern Defendants are entirely without merit and are overruled. A motion to dismiss a complaint assumes the truth of the pleading's well pleaded factual allegations. Characterizing such factual allegations as “conclusory” does not justify disregarding this basic principle.
Plaintiff's objection to the recommended dismissal of the complaint as against Joseph Neiderman and Joshua Shapiro rests on a theory that was not advanced before the magistrate judge. This court will not entertain it as this stage.
Accordingly:
1. The motion of defendant Stephen Stern to dismiss the amended complaint (DI 21) is granted to the extent the constructive fraudulent conveyance claim (count 1), the aiding and abetting fraudulent conveyance claim (count 3), the aiding and abetting fraudulent conveyance with intent to defraud claim (Count 4) and the aiding and abetting fraud claim (count 8) against him are dismissed. It is denied in all other respects.
2. The motion of the Mark Stern Defendants to dismiss the amended complaint as to them (DI 32) is granted to the extent that the aiding and abetting fraudulent conveyance with intent to defraud claim (count 4) is dismissed. It is denied in all other respects.
3. The motion of the Other Defendants (DI 49) is granted to the extent that (1) the aiding and abetting fraudulent conveyance with intent to defraud claim (Count 4) is dismissed as to all of these defendants, and (2) all claims against defendants Shapiro and Neiderman are dismissed. The motion is denied in all other respects.
SO ORDERED.
Plaintiff Amusement Industry, Inc. (“Amusement”) has sued defendants Midland Avenue Associates, LLC (“Midland”); Stephen Stern; Joshua Shapiro (a/k/a Joshua Schapiro a/k/a Joshua Schapira); Payless Office Products Corp. (“Payless”); Joseph Niederman; Kesef Properties, Inc. (“Kesef Properties”); Benjamin Irwin LLC (“Benjamin Irwin”); SME International Associates, Inc. (a/k/a SME International Associates a/k/a SME Associates a/k/a SME International) (“SME”); Moses Stern (a/k/a Mark Stern) (“Mark Stern”); First Republic Group Corp. (“FRG Corp.”); Malke Malik, Tovia Malik, and Matthew Solof seeking damages arising out of the alleged misappropriation of funds belonging to Amusement that Amusement had deposited into escrow in July 2007. See Amended Complaint, filed Sept. 17, 2010 (Docket # 5) (“Compl.”) ¶¶ 1–7. Stephen Stern, Mark Stern, FRG Corp., Midland, SME, Joshua Shapiro, Payless, Joseph Niederman, Kesef Properties, Malke Malik, and Tovia Malik (collectively, the “defendants”) have now moved to dismiss the claims against them. For the reasons stated below, Stephen Stern's motion to dismiss (Docket # 21); Mark Stern, FRG Corp., Midland, and SME's (collectively, the “Mark Stern Defendants”) motion to dismiss (Docket # 32); and Joshua Shapiro, Payless, Joseph Niederman, Kesef Properties, Malke Malik, and Tovia Malik's motion to dismiss (Docket # 49) should each be granted in part and denied in part.
I. BACKGROUNDA. Claims Brought by Amusement
For purposes of deciding the instant motions, we assume the truth of the allegations in the amended complaint, hereinafter referred to as the “complaint.”
In April 2007, FRG Corp., controlled by Mark Stern, id. ¶ 2, entered into a contract to purchase eleven shopping centers (the “Portfolio”) from Colonial Realty Limited Partnership (“Colonial”) with a closing date of late June 2007, id. ¶¶ 2, 34.1 First Republic Group LLC (“FRG LLC”) was formed on or about June 23, 2007 to hold the Portfolio, and, at some point after this date, FRG Corp. “assigned [its] interest in the Colonial purchase agreement” to FRG LLC. Id. ¶ 2. As the date of closing approached, Mark Stern “sought from Amusement and others the additional funds needed to close the purchase of the Portfolio.” Id. ¶¶ 2, 35. In reliance on various representations by Mark Stern and others as to, inter alia, “the appraised value of the Portfolio, the suitability of Mark Stern as a business partner, and the proposed use of Amusement's funds,” Amusement entered into a “letter of understanding” (“LOU”) with Mark Stern, who was acting on behalf of FRG Corp. and/or FRG LLC, on July 2, 2007. Id. ¶¶ 2, 37. Pursuant to the LOU, Amusement deposited $13 million into an escrow account located at North Fork Bank and maintained by Land Title Associates, an entity operated by Ephraim Frenkel. Id. ¶¶ 2, 38. The parties understood that these funds “would remain in escrow pending finalization of the terms for an agreement pursuant to which Amusement would obtain an ownership interest in the entity holding the Portfolio, security interests in the properties that comprised the Portfolio, and repayment of its funds.” Id. ¶ 2; see id. ¶¶ 3, 39, 41, 46. Following the transfer of the money to escrow, Amusement made a number of proposals to finalize the terms of an agreement, but no agreement was ever reached. Id. ¶¶ 4, 40.
On or about July 3, 2007, without Amusement's knowledge or consent, Frenkel transferred the $13 million into a bank account belonging to FRG Corp. Id. ¶¶ 5, 45. The transfer “was made at the instruction of Mark Stern and Stephen Stern for the purpose of further removing the funds from Amusement's control.” Id. ¶ 5. On or about July 12, 2007, Mark Stern directed that a portion of Amusement's funds be used to purchase the Portfolio. Id. ¶ 6. However, several million dollars of the $13 million placed into escrow by Amusement was not used for the purchase of the Portfolio. Id. ¶ 7. Mark Stern and Stephen Stern caused these funds to be diverted to defendants Stephen Stern, Midland, Shapiro, Payless, Niederman, Kesef Properties, SME, Mark Stern, Benjamin Irwin, “Malik,” Solof, “Doe Defendants 1–10,” and the “XYZ Corp.” (collectively, the “transferees”). Id. ¶¶ 7, 45, 46.
Additionally, Mark Stern and Stephen Stern “created or assisted with the creation of or submission of false expenses in the Colonial transaction so that there would appear to be higher than actual expenses associated with the purchase of the Portfolio.” Id. ¶ 47. Stephen Stern “devis[ed] a legal excuse for Mark Stern to delay closing the transaction with Colonial until Mark Stern could find a party to serve as a target from whom the funds could be obtained.” Id. ¶ 161. The statements and omissions made by Mark Stern and Stephen Stern were “designed to induce Amusement to leave its $13 million in escrow with Frenkel and, after the money was misappropriated, to cause Amusement to believe that its money was still in escrow or being properly used for the Portfolio.” Id. ¶ 156; see id. ¶¶ 157–58, 162–69.
Amusement wrote to Frenkel on several occasions, copying Mark Stern and Steven Friedman on the correspondence, to ask for the return of Amusements funds, but received no response. Id. ¶ 52. In a further attempt to evade Amusement's efforts to obtain return of the funds, Mark Stern and Stephen Stern transferred these funds to the bank accounts of Mark Stern's family, friends and close associates, including Stephen Stern, Stephen Stern's law firm, Hoffinger, Stern & Ross, a bank account titled in the name of “Malke Malik ATF Tovia Malik,” and a bank account in the name of Bruce Minsky, an attorney representing Mark Stern. Id. ¶¶ 55–61. Between about July 16, 2007 and August 23, 2007, at the instruction of Mark Stern and others, Minsky transferred $636,649.25 of Amusement's funds into an account at JP Morgan Chase Bank in the name of Midland and for the benefit of Midland and/or Mark Stern. Id. ¶ 63. On or about July 18, 2007, at the instruction of Mark Stern and others, Minsky transferred $945,327.72 of Amusement's funds into an account at JP Morgan Chase Bank in the name of Payless and for the benefit of Payless and/or Shapiro. Id. ¶ 64. On or about August 20, 2007, at the instruction of Mark Stern and others, Minsky transferred $350,000 of Amusement's funds to an account at North Fork Bank in the name of Benjamin Irwin for the benefit of Benjamin Irwin and/or Niederman and/or Solof. Id. ¶ 66. On or about August 21, 2007, at the instruction of Mark Stern and others, Minsky transferred $120,000 of Amusement's funds to an account at Provident Savings Bank in the name of Kesef Properties for the benefit Niederman. Id. ¶ 67. Mark Stern had a close relationship with Payless, Kesef Properties, Niederman, Benjamin Irwin and Solof, and these transfers were made without regard to the adequacy of consideration. Id. ...
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