Azrielli v. Cohen Law Offices
| Decision Date | 06 April 1994 |
| Docket Number | D,614,Nos. 327,s. 327 |
| Citation | 21 F.3d 512 |
| Parties | Fed. Sec. L. Rep. P 98,150, RICO Bus.Disp.Guide 8528 Igor AZRIELLI, Vladimir Kirchner, Nicholas Blinov, Beatrice Vest, Ilia Kalinovsky, Lev Katz, Riccobono Properties, Ltd., Aaron Roytenberg, Faina Kirchner, V. Zamaryonov, Plaintiffs-Appellants-Cross-Appellees, v. COHEN LAW OFFICES, James Khani, Defendants-Appellees-Cross-Appellants, V. Bankin, Awada Investment Corp., Abelis Rachkauskas, Sergey Yekimov, Defendants-Appellees. ockets 93-7366,-7608. |
| Court | U.S. Court of Appeals — Second Circuit |
Joseph H. Neiman, Forest Hills, NY, for plaintiffs-appellants-cross-appellees.
Arnold Stream, Mineola, NY (Carole Burns & Associates, Mineola, NY, on the brief), for defendants-appellees-cross-appellants Cohen Law Offices and James Khani.
Allan Winston, Rye, NY (Winston & Winston, on the brief), for defendants-appellees V. Bankin, Awada Investment Corp., Abelis Rachkauskas and Sergey Yekimov.
Before: NEWMAN, Chief Judge, KEARSE, Circuit Judge, and TENNEY, District Judge. *
Plaintiffs Igor Azrielli, et al., appeal from so much of a judgment of the United States District Court for the Eastern District of New York, Denis R. Hurley, Judge, as dismissed their complaint asserting claims of securities fraud in violation of Sec. 10(b) of the Securities Exchange Act of 1934 ("1934 Act"), 15 U.S.C. Sec. 78j(b) (1988), and Rule 10b-5 promulgated thereunder, 17 C.F.R. Sec. 240.10b-5 (1993); claims of racketeering acts in violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. Secs. 1961-1968 (1988) ("RICO"); and various claims under state law. The court granted defendants' motions for summary judgment dismissing the complaint, ruling that plaintiffs had come forward with no evidence to support certain elements of their 1934 Act and RICO claims, and declining to exercise pendent jurisdiction over their state-law claims. On appeal, plaintiffs contend that summary judgment was inappropriate because there were genuine issues to be tried as to each contested element. Defendants Cohen Law Offices and James Khani (collectively "Khani") have cross-appealed, challenging so much of the judgment as denied their motion for the imposition of sanctions against plaintiffs pursuant to Fed.R.Civ.P. 11.
For the reasons below, we conclude that the dismissal of the RICO claims against Khani was proper, but that evidence in the record revealed genuine issues of material fact with respect to plaintiffs' other claims against Khani and with respect to their federal claims against the other defendants, making summary judgment as to the latter two groups of claims inappropriate. Accordingly, we vacate so much of the judgment as dismissed plaintiffs' federal claims, other than the RICO claims against Khani, and we reinstate the state-law claims as well. Given this disposition, we reject the cross-appeal with regard to Rule 11 sanctions.
The present action arises out of transactions related to the acquisition of an apartment building at 217 East 29th Street in New York City (the "building") in a purported "flip" sale, i.e., a transaction in which one person acquires the right to purchase a property and immediately sells that right at a profit. The cast in the present case includes defendant V. Bankin, who, according to defendants, was the middle person in the flip sale; defendants Sergey Yekimov and Abelis Rachkauskas, who contend that they purchased from Bankin in the flip sale; Khani, who represented Bankin and/or Yekimov and Rachkauskas in most of the transactions at issue here; and the plaintiffs, to whom, at various times in 1985 and 1986, Yekimov and Rachkauskas in effect sold part of their interest in the flipped property.
On September 10, 1985, Bankin entered into a contract to purchase the building from 217 East 29th Street Equities Group ("Equities") for $770,000 ("September 10 contract"). On September 20, Bankin entered into a formal contract with Yekimov and Rachkauskas for the sale of the building to them for $989,000, a contract characterized by Yekimov and Rachkauskas as an "assignment" of Bankin's rights to them for $219,000 (the "flip/assignment"). Yekimov and Rachkauskas then sought investors.
On December 4, 1985, plaintiffs Azrielli, Beatrice Vest, Lev Katz, and V. Zamaryonov (collectively the "Group A" plaintiffs) entered into a shareholder agreement with Yekimov and Rachkauskas to form a corporation, Riccobono Properties, Ltd. ("Riccobono"), whose purpose was to purchase and manage the building. Under the shareholder agreement, Yekimov and Rachkauskas were to receive 70 percent of the Riccobono shares, and Group A 30 percent. The shareholders had the right to sell their shares, subject to other shareholders' right of first refusal. Rachkauskas or Yekimov sold some of their shares to plaintiffs Nicholas Blinov, Vladimir In the meantime, Riccobono purchased the building on December 19, 1985. The closing documents stated that Riccobono paid a purchase price of $989,000.
Kirchner, Ilia Kalinovsky, Faina Kirchner, and Aaron Roytenberg (collectively the "Group B" plaintiffs) at various times during 1986.
Plaintiffs commenced the present action in 1988 principally against Yekimov and Rachkauskas, claiming violations of federal securities laws, RICO, principles of common-law fraud, and state statutory law. Plaintiffs asserted that the purported flip/assignment from Bankin to Yekimov and Rachkauskas was a sham transaction; that Yekimov and Rachkauskas had in fact purchased the building directly from Equities for $770,000 while representing falsely that they had purchased it from Bankin for $989,000; that the shares of Riccobono purchased by plaintiffs were based on the latter price; and that Yekimov and Rachkauskas falsely represented that their investment in Riccobono was proportionate to the investments of the plaintiffs. The complaint alleged that
[a]t no time did BANKIN ever purchase the properties from [Equities], nor did BANKIN receive the $219,000.00 difference, which had he been involved in a flip, he would have received. None of the plaintiffs would have put in the amount of money they did, had they known the building had actually been bought for $770,000.00 as opposed to the $989,000.00.
(Complaint p 28.) The complaint alleged that Yekimov and Rachkauskas had "pocketed $219,000.00 in cash [out of] which they fraudulently and deceptively cheated the plaintiffs." (Id. p 26.)
Plaintiffs alleged that Bankin had participated in the fraudulent scheme "by allowing his name to be used on the bogus contract and showing up at the closing." (Id. p 30.) They alleged that Khani had furthered the scheme by helping to persuade many of the plaintiffs that Yekimov and Rachkauskas "were legitimate, were in fact[ ] paying $989,000.00 for the building and that the building was worth it." (Id. p 31.)
The complaint also alleged that the acts of Yekimov and Rachkauskas "constitute[d] at least two acts of fraud in connection with the purchase and sale of securities" (id. p 35), and that "Rachkauskas and Yekimov committed other acts of fraud and theft during the time period covered by RICO" (id. p 36), including "set[ting] up bogus real estate deals in New Jersey with plaintiff Nicholas Blinov" (id. p 37).
In addition, in opposition to early motions by defendants for summary judgment, several of the plaintiffs submitted affidavits stating that prior to purchasing their shares they had not been informed that there was a flip sale. Defendants' early summary judgment motions were denied, and discovery followed.
In 1992, defendants again moved for summary judgment, contending that all parties to the transaction had known (a) that the transaction was a flip sale, (b) that Bankin purchased the building and assigned his interest in it to Yekimov and Rachkauskas, and (c) that the $219,000 difference between the $770,000 price shown in the September 10 contract and the $989,000 paid by Riccobono was paid to Bankin in December 1985 as an assignment fee. Khani argued in addition that, because he was merely the attorney for Yekimov and Rachkauskas, and not a principal, the complaint failed to state a claim against him under the securities laws or RICO. Defendants also moved for the imposition of sanctions pursuant to Fed.R.Civ.P. 11.
In opposition to the summary judgment motions, plaintiffs' attorney sought "[t]o eliminate any confusion" as to the nature of plaintiffs' claim of fraud, stating that their central contention was not so much that they were unaware of the flip nature of the transaction but rather "that there never was any 'flip' deal in this matter." (Affidavit of Joseph H. Neiman dated October 16, 1992, p 2.) He stated that plaintiffs contended
[t]hat Vladimir Bankin never received the $219,000.00 profit that he has claimed to receive and that this scheme was designed to convince all of the plaintiffs that defendants (id.), leading plaintiffs to believe "that Rachkauskas and Yekimov were paying the same pro rata price [in Riccobono] as everyone else" (Id. p 4). In support of their contention that Yekimov and Rachkauskas had bought the building directly from Equities and that the supposed September 20 flip/assignment was a sham, plaintiffs submitted, inter alia, a September 11, 1985 check for $15,000 from Rachkauskas to the law firm representing Equities; the "memo" line on this check read: "downpayment for 219 E. 29 St. NY, NY". Plaintiffs also submitted the pertinent page of the municipal plat records listed in the Standard Manhattan Residential Directory for 1988-1989 ("plat directory"), which listed Riccobono as the owner of the building and as having purchased it for $770,000. In addition, Blinov, one of the Group B plaintiffs, submitted an affidavit stating that in the spring of 1991, Bankin telephoned and
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