Berman v. Labonte, No. 3:19-CV-1533(VLB)
| Court | United States District Courts. 2nd Circuit. United States District Court (Connecticut) |
| Writing for the Court | Vanessa L. Bryant, United States District Judge |
| Citation | 622 B.R. 503 |
| Parties | James BERMAN, Chapter 7 TRUSTEE FOR the Substantively Consolidated ESTATE OF MICHAEL S. GOLDBERG, LLC and Michael S. Goldberg, Plaintiff, v. Scott A. LABONTE, et al., Defendants. |
| Docket Number | No. 3:19-CV-1533(VLB) |
| Decision Date | 30 September 2020 |
622 B.R. 503
James BERMAN, Chapter 7 TRUSTEE FOR the Substantively Consolidated ESTATE OF MICHAEL S. GOLDBERG, LLC and Michael S. Goldberg, Plaintiff,
v.
Scott A. LABONTE, et al., Defendants.
No. 3:19-CV-1533(VLB)
United States District Court, D. Connecticut.
Signed September 30, 2020
Aaron Romney, James M. Moriarty, John Louis Cesaroni, Christopher Holden Blau, Eric Alexander Henzy, Zeisler & Zeisler, P.C., Bridgeport, CT, for Plaintiff.
James T. Shearin, Thomas S. Lambert, Pullman & Comley, LLC, Bridgeport, CT, Thomas J. Sansone, Carmody Torrance Sandak & Hennessey, LLP, New Haven, CT, David M.S. Shaiken, Shipman, Shaiken & Schwefel, LLC, West Hartford, CT, for Defendants Scott A. LaBonte, Sally A. LaBonte.
James T. Shearin, Pullman & Comley, Bridgeport, CT, Mark H. Dean, Law Office of Mark H. Dean, Hartford, CT, Thomas J. Sansone, Carmody Torrance Sandak & Hennessey, LLP, New Haven, CT, for Defendants Roland G. LaBonte, Marilyn P. LaBonte.
James T. Cowdery, James John Healy, Thomas J. Murphy, Cowdery & Murphy, LLC, Hartford, CT, Thomas J. Sansone, Carmody Torrance Sandak & Hennessey, LLP, New Haven, CT, James T. Shearin, Pullman & Comley, Bridgeport, CT, for Defendant Joseph W. Sparveri, Jr.
MEMORANDUM OF DECISION ON DEFENDANTS' MOTIONS TO DISMISS
Vanessa L. Bryant, United States District Judge
As discussed in the Court's recent decision denying the Defendants' motion to stay discovery during the pendency of the Defendants' motions to dismiss [Dkt. 87], this matter is a private action brought pursuant to the Racketeer Influenced Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1964(c). In short, Michael S. Goldberg pled guilty to operating a Ponzi scheme that defrauded investors of $30 million dollars [Dkt. 1 (Compl.) ¶¶ 3, 25-28, 45-46]. Thereafter, Plaintiff James Berman ("Plaintiff" and the "Trustee"), the bankruptcy trustee, obtained judgments against the Ponzi scheme's "net-winners," including Defendant Scott A. LaBonte (hereinafter "Scott"). [Id. ¶¶ 2, 52, 283-399].1 This action alleges that Scott, his family members, retained professionals, and a former business partner, conspired with and on behalf of Scott to hinder the Trustee's attempts to collect the judgment, allegedly constituting a RICO violation. Now, each of the Defendants have moved to dismiss the action, arguing both common [Dkt. 58 (Joint Mem. in Supp. of Mots. to Dismiss) ] and separate defenses [Dkts. 78-83 (Separate Mots. to Dismiss.) ]. For reasons discussed below, the Court GRANTS in part and DENIES in part the Defendants' motions to dismiss.
Background
For the purpose of deciding Defendants' Motions to Dismiss, the Court "draw[s] all reasonable inferences in Plaintiff['s] favor, assume[s] all well-pleaded factual allegations to be true, and determine[s] whether they plausibly give rise to an entitlement to relief." Faber v. Metro. Life Ins. Co. , 648 F.3d 98, 104 (2d Cir. 2011) (citations omitted).
I. General Background
Between 1997 and 2009, Michael Goldberg operated a "pure" Ponzi scheme, meaning that it had no legitimate investments. [Compl. ¶¶ 25-26]. Before the scheme could be unwound, investors suffered $30 million in losses. [Compl. ¶ 28]. The Goldberg Ponzi scheme was maintained by "feeders," who were paid finders fees or charged a loan fee to a sub-investor. [Compl. ¶ 27]. Non-party Edward S. Malley, Scott's cousin, was a feeder. Scott was an investor and operated as a sub-feeder
through Mr. Malley, meaning that Scott also recruited investors and invested their money. [Compl. ¶¶ 29-30].
From January 16, 2006 through October 11, 2017, Scott invested in the Goldberg scheme through Mr. Malley using six promissory notes drafted by Scott's counsel. The notes had interest rates of 25-40%, plus a 20% mandatory loan fee upon execution, executed in Connecticut, applying Nevada law. [Compl. ¶¶ 32-34]. Five of the six notes included a clause that they were for investment with Mr. Goldberg's company. [Compl. ¶ 31]. Only the first note, which was for the smallest amount, did not contain this clause. [Id. ].
Defendant Joseph W. Sparveri, Scott's accountant, calculated the interest on the notes as compounding. [Compl. ¶¶ 35-38]. He is a licensed securities broker. [Compl. ¶ 36]. He also recommended that the notes use Nevada law because the terms would violate Connecticut's usury law. [Compl. ¶ 37]. Scott used third party funds to lower his investment risk. [Compl. ¶¶ 39-40]. He issued promissory notes to his investors which mirrored the notes with Mr. Malley. Scott knew at the time that it was a fraud. [Compl. ¶ 43] (citing In re Michael S. Goldberg, LLC , 595 B.R. 119, 121 (D. Conn. 2018) (Thompson, J)("Because Scott LaBonte knew the Goldberg Scheme was a fraud, he structured his own investments in the Goldberg Scheme, as well as those of individuals he introduced to the Goldberg Scheme, as loans memorialized by promissory notes issued to his cousin Edward Malley")). When the Ponzi scheme was unwound, Scott was a net winner because he recovered his investment, plus income from fees charged to his sub-investors. [Compl. ¶ 44].
After Mr. Goldberg was sued by investors and turned himself in to the FBI, an involuntary bankruptcy proceeding commenced. [Compl. ¶¶ 45-50]. Mr. Berman was elected and confirmed as the Chapter 7 Bankruptcy Trustee and was appointed as the receiver for restitution in the criminal case against Mr. Goldberg. [Compl. ¶¶ 46-48](bankruptcy election and confirmation); [Compl. ¶ 12](appointed receiver for restitution). In the bankruptcy, the Trustee filed approximately 200 adversarial proceedings to clawback funds paid by the Ponzi scheme to "net winners." [Compl. ¶ 49]. One of the adversarial proceedings in the bankruptcy court resulted in a judgment against Scott for $7.24 million dollars, plus pre- and post-judgment interest. [Compl. ¶ 52]. The district court (Thompson, J) affirmed the judgment over Scott's objection. [Compl. ¶¶ 53-56]; see also In re Michael S. Goldberg , 3:15-cv-1682, [Dkt. 28 (Judgment, 09/29/2017) ].
II. LaBonte family trusts
In May 2010, Mr. Malley informed Scott that an adversarial action was filed against them. [Compl. ¶ 57]. At the time, Scott was aware of the public disclosure of the Ponzi scheme and had discussed it with Mr. Sparveri. [Compl. ¶ 59]. Upon learning of the adversarial proceeding from Mr. Malley, Scott contacted his father, Defendant Roland LaBonte, Mr. Sparveri and, Scott's attorney, Defendant Paul L. Bourdeau, for assistance. [Compl. ¶ 60]. On June 2, 2010, Scott, Roland, Mr. Sparveri, and Attorney Bourdeau met at the offices of Devcon Enterprises, Inc., a closely held LaBonte family real estate management company located in West Hartford, Connecticut. [Compl. ¶¶ 62-63, 242]. Attorney Bourdeau produced his notes from this meeting following Judge Thompson's ruling applying the crime-fraud exception to attorney-client privilege. [Compl. ¶ 64].
Attorney Bourdeau's notes reference a potential "claw back" by a "Hartford Trustee." [Id. ]. During their depositions, both Mr. Sparveri and Attorney Bourdeau admitted
that the purpose of the meeting was to determine a course of action to place Scott's assets beyond the reach of the Trustee. [Compl. ¶¶ 65-67]. Defendant Sally A. LaBonte, Scott's wife, testified that the meeting was for estate planning because they were traveling to Italy with the guardians of their children. [Compl. ¶ 68]. Judge Thompson rejected this explanation during the bankruptcy appeal as pretextual because the documentation was completed after the trip, then backdated to June 2, 2010. [Compl. ¶ 69].
Scott then transferred most of his assets, principally real estate interests held individually and in a revocable trust, to the irrevocable Scott A. LaBonte Dynasty Trust using instruments backdated to June 2, 2010. [Compl. ¶ 72](listing the assets). Mr. Sparveri, who was also serving as a trustee for the Scott A. LaBonte Dynasty Trust, [Compl. ¶ 18], obtained approval for the transfers from the other trustees. [Compl. ¶¶ 74-75]. As trustees, Sally, Roland, and Mr. Sparveri each agreed to the assignment and assumption of assets into the Scott A. LaBonte Dynasty Trust. [Compl. ¶¶ 76, 79-80]. The transfers were completed on September 9, 2010. [Compl. ¶ 81].
Mr. Sparveri permitted Scott to value the assets to determine the consideration to be paid by the trusts for the transfer. [Compl. ¶¶ 82-84]. Scott personally valued the assets at approximately $1,000,000, but Scott claimed a year earlier that his total assets were worth $13.1 million in connection with a personal Statement of Financial Condition supplied to a bank by Mr. Sparveri. [Compl. ¶¶ 85-88]. The consideration was provided via a "sham" promissory note that Mr. Sparveri and Attorney Bourdeau opined on; Attorney Bourdeau's notes from the June 2, 2010 meeting reference extending the maturity date on the inter-trust promissory notes. [Compl. ¶¶ 89-97]. Although Scott told the bank the transfers were for estate planning purposes, Attorney Bourdeau testified that the transfers were unrelated to Scott and Sally's estate planning. [Compl. ¶¶ 98-100].
Scott continued to control assets held by the Scott...
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