Bd. of Managers of Trump Tower at City Ctr. Condo. v. Palazzolo, 16-CV-9188 (KMK)

• Decision Date: 28 September 2018
• Docket Number: No. 16-CV-9188 (KMK),16-CV-9188 (KMK)
• Parties: The BOARD OF MANAGERS OF TRUMP TOWER AT CITY CENTER CONDOMINIUM, BY its President, Alan NEIDITCH, Plaintiff, v. Frank PALAZZOLO; Mary Palazzolo; Stephen Tobia ; Stephen Reitano; Joseph Santangelo; Lorraine DiStefano; Gina Thomas ; F & M Funding LLC; RLA Holdings, LLC; Premium Staffing LLC; Premium Parking, LLC; Antoinette City Center, LLC; B.A.B. Group I, LLC ; B.A.B. Group II, LLC; First Resource Funding LLC; and Reda, Romano & Company, LLP, Defendants.
• Court: U.S. District Court — Southern District of New York

346 F.Supp.3d 432

The BOARD OF MANAGERS OF TRUMP TOWER AT CITY CENTER CONDOMINIUM, BY its President, Alan NEIDITCH, Plaintiff,

v.Frank PALAZZOLO; Mary Palazzolo; Stephen Tobia ; Stephen Reitano; Joseph Santangelo; Lorraine DiStefano; Gina Thomas ; F & M Funding LLC; RLA Holdings, LLC; Premium Staffing LLC; Premium Parking, LLC; Antoinette City Center, LLC; B.A.B. Group I, LLC ; B.A.B. Group II, LLC; First Resource Funding LLC; and Reda, Romano & Company, LLP, Defendants.

No. 16-CV-9188 (KMK)

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

Signed September 28, 2018

Adam B. Oppenheim, Esq., Meister Seelig & Fein LLP, New York, NY, Counsel for Plaintiff.

Lawrence M. Gottlieb, Esq., Hass & Gottlieb, White Plains, NY, Counsel for Defendants Frank Palazzolo, Mary Palazzolo, F & M Funding LLC, Ridgeview Holdings LLC, B.A.B. Group I, LLC, and B.A.B. Group II, LLC.

Kevin J. Harrington, Esq., John T.A. Rosenthal, Esq., Harrington, Ocko & Monk, LLP, White Plains, NY, Counsel for Defendants Stephen Tobia, Stephen Reitano, Joseph Santangelo, Lorraine DiStefano, Gina Thomas, RLA Holdings, LLC, Premium Staffing LLC, Premium Parking, LLC, and First Resource Funding LLC.

David T. Feuerstein, Esq., Feuerstein Kulick LLP, New York, NY, Counsel for Defendant Antoinette City Center, LLC.

OPINION & ORDER

KENNETH M. KARAS, UNITED STATES DISTRICT JUDGE

The Board of Managers of Trump Tower at City Center Condominium, by its President, Alan Neiditch, (the "Board" or "Plaintiff") filed the instant Action against Frank Palazzolo ("Mr. Palazzolo"); Mary Palazzolo ("Palazzolo"); Stephen Tobia ("Tobia"); Stephen Reitano ("Reitano"); Joseph Santangelo ("Santangelo"); Lorraine DiStefano ("DiStefano"); Gina Thomas ("Thomas"); F & M Funding LLC ("F & M"); RLA Holdings, LLC ("RLA"); Premium Staffing LLC ("Premium Staffing"); Premium Parking, LLC ("Premium Parking"); Antoinette City Center, LLC ("ACC"); B.A.B. Group I, LLC ("B.A.B. I"); B.A.B. Group II, LLC ("B.A.B. II"); First Resource Funding LLC ("First Resource"); Ridgeview Holdings LLC ("Ridgeview LLC"); and Reda, Romano & Company, LLP ("Reda Romano") (collectively, "Defendants"), alleging one count of a violation of the Racketeer Influence and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(a), by Mr. Palazzolo, one count of a violation of RICO, 18 U.S.C. § 1962(b), by Mr. Palazzolo, one count of a violation of RICO, 18 U.S.C. § 1962(c) by all Defendants except Reda Romano, one count of conspiracy to violate RICO, 18 U.S.C. § 1962(d), by all Defendants except Reda Romano, as well as state law claims against various Defendants for conversion, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, fraud, fraudulent concealment by a fiduciary, unjust enrichment, money had and received, professional malpractice, gross negligence, and breach of contract. (See Am. Compl. (Dkt. No. 120).)

Before the Court are three Motions. First, there are two Motions To Dismiss the Amended Complaint pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6) —one on behalf of Tobia, Reitano, Santangelo, DiStefano, Thomas, RLA, Premium Staffing, Premium Parking, and First Resource (collectively "Tobia Defendants"), (see Dkt. No. 138), and the other on behalf of ACC, (see Dkt. No. 144). In addition, Plaintiff has filed a Motion To Dismiss the counterclaims asserted by Mr. Palazzolo, and to strike the affirmative defenses asserted by Mr. Palazzolo, Palazzolo, F & M, B.A.B. I, B.A.B. II, and Ridgeview LLC, (collectively "Palazzolo Defendants"). (See Dkt. No. 140.)

For the following reasons, the Tobia Defendants' Motion and ACC's Motion are both denied, and Plaintiff's Motion is granted in part and denied in part.

I. Background

A. Parties

This Action involves a large number of parties with various roles in the unlawful scheme alleged by Plaintiff. For clarity, the Court provides a summary of the Parties and their respective roles in the alleged scheme.

Plaintiff Board is an unincorporated association and the legal entity responsible for the control and operation of all common areas and public spaces of the Trump Tower at City Center Condominium at White Plains (the "Condominium"). (Am. Compl. ¶ 10.) The Board is comprised of seven members and has governed the Condominium since its opening in 2005. (Id. ¶ 2.)

Mr. Palazzolo served as Treasurer of the Condominium from 2007 until his removal by the Board in 2015. (Id. ¶ 11.) Mr. Palazzolo currently resides in the Condominium and remains a member of the Board as the nominated representative of the commercial spaces in the Condominium, including the commercial space owned by ACC. (Id. ) Mr. Palazzolo is a real estate investor, and owns a commercial building at 800 Central Park Avenue in Scarsdale, New York known as "Palazzolo Plaza," an address used by Defendants F & M, RLA, First Resource, Premium Staffing, Premium Parking, ACC, and Ridgeview LLC. (Id. ) Mr. Palazzolo is alleged to have either controlled or have been a member or managing member of a variety of businesses, including F & M, RLA, Premium Staffing, Premium Parking, ACC, Ridgeview LLC, B.A.B. I, and B.A.B. II. (Id. ) Mr. Palazzolo is married to Palazzolo, who herself controlled or was otherwise a member of F & M and Ridgeview LLC. (Id. ¶ 12.) Defendant Thomas was an employee of Mr. Palazzolo and Palazzolo at F & M. (Id. ¶ 17.)

Mr. Palazzolo's long-time business associate Tobia is also alleged to have either controlled or have been a member or managing member of RLA, ACC, First Resource, and Ridgeview LLC. (Id. ¶ 13.) Tobia, a real estate investor and businessman, served as a member of the Board from October 2006 through his ouster in 2015, including a term as Vice President of the Board from June 2011 through December 2015. (Id. ) Together, Mr. Palazzolo and Tobia are alleged to have either owned or controlled ACC, a limited liability company that owns one commercial unit in the building alongside RLA, another limited liability company which itself owns two commercial units. (Id. ¶ 177.)

Reitano was also a member of the Board, serving from April 2006 through February 2013. (Id. ¶ 14.) Reitano is alleged to have controlled and/or been a member or managing member of Ridgeview LLC, along with Mr. Palazzolo and Tobia. (Id. )

Santangelo is the final member of the Ridgeview LLC, and also "controlled and/or was a member or managing member of" Premium Staffing and Premium Parking. (Id. ¶ 15.)

The Ridgeview LLC was created by Mr. Palazzolo, Tobia, Reitano, and Santangelo to manage an investment in a real estate project, Ridgeview, in Elmsford, New York. (Id. ¶ 64.) Ridgeview LLC received financing through F & M, which itself used funds earmarked for Tobia's company, RLA, on its own balance sheets. (Id. ¶¶ 63, 65.)

Mr. Palazzolo was also involved with Premium Staffing and Premium Parking, of which Santangelo and DiStefano were controlling partners and/or members or managing members. (Id. ¶¶ 11, 15–16.) Premium Staffing was created in December 2007 by Santangelo and DiStefano to manage the Condominium's Garage finances and ensure that the valet parking provider, Supreme Parking, Inc. ("Supreme"), was paid its monthly service fee from 2008 onward. (Id. ¶¶ 159–60.) Premium Parking, also created by Santangelo and DiStefano, came into the picture in 2014, where it took over for Supreme as the valet service provider at the Condominium. (Id. ¶ 169.)

B. Amended Complaint Factual Background

The following facts are drawn from Plaintiff's Amended Complaint and are taken as true for the purpose of resolving Defendants' respective Motions.

The Condominium has 215 units, all but three of which are residential. (Am. Compl. ¶ 30.) In 2005, almost immediately after opening, the Condominium encountered financial difficulties. (Id. ) Beginning in 2007, Mr. Palazzolo, a resident of the Condominium, became the Treasurer of the Condominium and negotiated payments from the Condominium's developer, Louis Cappelli ("Cappelli"), to boost the Condominium's reserve account, while also engineering the Condominium's purchase of the garage and recreation deck from Cappelli. (Id. ¶ 31.) For these actions, among others, Mr. Palazzolo was credited for righting the Condominium's financial ship. (Id. )

Mr. Palazzolo used these past successes to dominate all aspects of the Board. Outside of a pre-existing business relationship with fellow Board member Tobia, Mr. Palazzolo began to enter into real estate investments with Reitano, also a Board member, and loaned substantial sums of money to two other Board members, John Durante and Fred Mastroianni. (Id. ¶ 32.) During this early period of Mr. Palazzolo's tenure, he also entered into an agreement with the Trump Corporation, which was then acting as the Condominium's managing agent. (Id. ¶ 33.) In exchange for a $100,000 annual fee, Mr. Palazzolo agreed to manage the Condominium's Reserve Account (the "Reserve Account"). (Id. ) It is Mr. Palazzolo's management of the reserve account, in addition to his later involvement with Premium Staffing, Premium Parking, and ACC, that spurred this Action.

1. Mr. Palazzolo's Use of the Reserve Accounts

a. The Complex Web of Bank Accounts

Prior to Mr. Palazzolo's tenure as Treasurer of the Condominium, the Reserve Account was maintained together with the operating account in a single account managed by the Trump Corporation. (Id. ¶ 42.) Mr. Palazzolo quickly changed this practice, opening and closing seven different accounts in the Condominium's name—but under his direct control—at four different financial institutions between 2007 and 2015. (Id. ¶ 43.) These accounts are alleged to have been critical to facilitating the actions of the alleged "Palazzolo Enterprise," as it became increasingly difficult to identify how much money the Condominium held in its Reserve Account, while allowing Mr. Palazzolo to transfer funds to and from those accounts without detection. (Id. ¶¶ 43–44.) Indeed, during Mr. Palazzolo's time as Treasurer, the Board only expressly authorized five...