Cobalt Multifamily Investors I, LLC v. Arden
| Citation | 857 F.Supp.2d 349 |
| Decision Date | 30 September 2011 |
| Docket Number | No. 06 Civ. 6172(KMW)(MHD).,06 Civ. 6172(KMW)(MHD). |
| Parties | COBALT MULTIFAMILY INVESTORS I, LLC, et al., Plaintiffs, v. Lisa ARDEN, et al., Defendants. |
| Court | U.S. District Court — Southern District of New York |
OPINION TEXT STARTS HERE
Joseph E. Gasperetti, Leonard Weintraub, Paduano & Weintraub, New York, NY, for Plaintiffs.
Howard Kagan, Howard Kagan Esq., Brooklyn, NY, James O. Drucker, Kase & Druker, Garden City, NY, Steven T. Halperin, Halperin & Halperin, P.C., Anthony Paduano, Paduano & Weintraub, New York, NY, for Defendants.
On February 24, 2011, Anthony Paduano, Esq., the court-appointed receiver (“Receiver”) for Plaintiffs Cobalt Multifamily Investors I LLC, Cobalt Multifamily CO. I, LLC, Cobalt Capital Funding, LLC, and Vail Mountain Trust (“the Cobalt Entities”) moved for summary judgment against Arthur Landsman, Michael Eisemann, Susan Kagan, John Dundon (the “individual defendants”), and Comvest Financial Corporation (collectively, “Defendants”).1
The Receiver moved for summary judgment on (1) his first cause of action, against Defendants for violations of Section 12(a)(1) of the Securities Act by selling unregistered securities, and (2) his third cause of action against Defendants for disgorgement of commissions paid to Defendants for their sale of unregistered securities, and for additional disgorgement under the theory that Defendants have been unjustly enriched.
On September 9, 2011, Magistrate Judge Michael H. Dolinger issued a Report and Recommendation (the “R & R”), familiarity with which is assumed. In the R & R, Judge Dolinger recommended that (1) summary judgment on the Receiver's first cause of action for sale of unregistered securities be granted against the individual defendants, but denied against Comvest Financial Corporation; and (2) summary judgment on the Receiver's third cause of action be granted as against the individual defendants, who shall be ordered to disgorge the commissions that they received for their sale of unregistered securities; but (3) summary judgment be denied against Defendant for additional disgorgement on the theory of unjust enrichment.
The R & R informed the parties that, pursuant to 28 U.S.C. § 636(b)(1)(C) and Federal Rule of Civil Procedure 72(b), they had fourteen days from service of the R & R to file any objections. No objections have been filed to the Report, and the time to object has expired.
When no objections are filed to an R & R, a district court need only satisfy itself that there is no “clear error on the face of the record” in order to accept the recommendation. Fed.R.Civ.P. 72(b) advisory committee's note; see also Nelson v. Smith, 618 F.Supp. 1186, 1189 (S.D.N.Y.1985).
As noted in the R & R, the parties' failure to object to the R & R also precludes appellate review of this Court's decision to adopt the R & R. The Second Circuit has held that failure to timely object to a magistrate judge's report and recommendation operates as a waiver of appellate review of the district court's ultimate order. See DeLeon v. Strack, 234 F.3d 84, 86 (2d Cir.2000) (citing Small v. Sec'y of Health & Human Servs., 892 F.2d 15, 16 (2d Cir.1989)). The Supreme Court has also upheld this practice, “at least when the parties receive clear notice of the consequences of their failure to object.” Small, 892 F.2d at 16 (citing Thomas v. Arn, 474 U.S. 140, 155, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985)).
The Court has reviewed the R & R and finds it to be well-reasoned and free of any clear error on the face of the record.
The Court thus adopts the R & R in its entirety. Accordingly, (1) summary judgment on the Receiver's first cause of action for sale of unregistered securities is GRANTED against the individual defendants and denied against Comvest; and (2) summary judgment on the Receiver's third cause of action is GRANTED against the individual defendants, who are ordered to disgorge the commissions that they received for their sale of unregistered securities; 2 and (3) summary judgment is DENIED with respect to any additional disgorgement on the theory of unjust enrichment.
The Receiver shall submit a status letter to the Court by October 12, 2011 outlining how he intends to proceed with the case, and whether the case should be closed.
The Clerk of Court shall terminate Docket Entry Number 139.
SO ORDERED.
Anthony Paduano, Esq., is the court-appointed receiver for plaintiffs Cobalt Multifamily Investors I, LLC, Cobalt Multifamily Co. I, LLC, Cobalt Capital Funding, LLC, and Vail Mountain Trust, which we refer to collectively as “the Cobalt entities.” The receiver was appointed after the Securities and Exchange Commission (the “Commission”) initiated a lawsuit against the three principals of Cobalt—Mark Shapiro, Irving Stitsky and William Foster—for securities fraud. The receiver brought this action to recover commissions that were paid to Cobalt sales employees while the fraud was ongoing.
On February 24, 2011, the receiver moved for summary judgment against Arthur Landsman, Michael Eisemann, Susan Kagan, John Dundon (together, the “individual defendants”), and Comvest Financial Corporation. All other defendants have settled or have had judgments entered against them. (Decl. of Anthony Paduano, Esq. (“Paduano Decl.”) p. 2 n. 1, Feb. 23, 2011).1 For the reasons set forth below, we recommend that the motion be granted in part and denied in part.
On March 27, 2006, the Commission filed an enforcement action that arose out of a fraudulent scheme perpetrated by Shapiro, Stitsky and Foster. ( See Paduano Decl. ¶ 2). The receiver was appointed on a temporary basis the next day, seeSec. & Exch. Comm. v. Cobalt Multifamily Investors I, LLC, 06–cv–236 (Order, 1–3, Mar. 28, 2006), and his appointment was made permanent on July 20, 2006. Seeid. (Order, 1 July 20, 2006). Shapiro and Stitsky were both sentenced to 85 years in prison, and Foster was sentenced to three years in prison plus three years of supervised release. SeeUnited States v. Shapiro, 06–cr–357 (Shapiro J., 2, Oct. 21, 2010; Foster J., 4, Sept. 22, 2010; Stitsky J., 2, July 7, 2010); (Paduano Decl. Exs. D–F).
The receiver brought this lawsuit in 2006, asserting three claims against defendants. (Compl. ¶¶ 91–102, Aug. 11, 2006). Defendants are sales employees of the Cobaltentities—and corporate entities owned by employees—who solicited investments in the Cobalt entities by means of alleged misrepresentations. (Compl. ¶¶ 5, 17, 20, 24, 48). The receiver first alleged that defendants had sold unregistered securities, in violation of Section 12(a)(1) of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. § 77a, et seq. ( Id. ¶¶ 91–94). The receiver's second claim, which he does not pursue on this motion, was for fraudulent conveyance. ( Id. ¶¶ 95–99). By his third cause of action, the receiver sought disgorgement of commissions paid to defendants under the theory that the defendants had been unjustly enriched. ( Id. ¶¶ 100–02).
The receiver now moves for summary judgment against defendants on the first and third causes of action. (Pl.'s Mem. of Law in Support of Mot. for Summ. J. at 1, Feb. 24, 2011). With the exception of pro se defendant Michael Eisemann, who sent a letter to the court in opposition, defendants have not responded to the receiver's motion.
We first discuss the admissibility of defendant Eisemann's letter and then analyze the merits of the receiver's motion.
A. The Admissibility of Defendant Eisemann's Letter
Defendant Eisemann's letter opposing this motion does not meet the standards for admissibility set forth in Federal Rule of Civil Procedure 56 or Local Civil Rule 56, does not provide admissible evidence controverting the receiver's motion, and attempts to raise defenses that are without merit. Accordingly, we recommend that the letter be disregarded.
Courts afford pro se litigants greater latitude than represented parties. See, e.g.,Triestman v. Fed. Bureau of Prisons, 470 F.3d 471, 474 (2d Cir.2006) (). This solicitude is particularly important in the summary judgment context, in which pro se litigants might be unaware of the deleterious effects of failing to respond adequately to a summary-judgment motion. SeeTracy v. Freshwater, 623 F.3d 90, 101–02 (2d Cir.2010). Accordingly, when a party opposing a pro se litigant moves for summary judgment, it must notify that litigant of both the potential repercussions of a failure to respond as well as the formal requirements of any such response. Seeid.; S.D.N.Y. Local Civil Rule 56.2. Eisemann was so notified here. ( See Notice to Pro Se Litigant, Feb. 24, 2011).
In pertinent part, Eisemann's letter reads:
I hereby oppose the plaintiffs [sic] request for a summary judgment against me. I believe there are issues of fact that can be determined by trial, not motion. The issue is if I am entitled to reasonably rely on the information provided to me by Martin Unger, counsel for Cobalt. I was advised by Mr. Unger that this offering was proper and there was no need to register. I had no reason to believe this information was not correct. I respectfully request the court to deny the request for summary judgment against me.
(Letter to the Court from Michael Eisemann, received Mar. 18, 2011).
The improper form of Eisemann's letter renders it inadmissible. In order to be admissible, a letter must either be sworn and based on personal knowledge, seeBeyah v. Coughlin, 789 F.2d 986, 989–90 (2d Cir.1986), or declared under penalty of perjury. See28 U.S.C. § 1746; seealsoFed.R.Civ.P. 56(c)(4). Eisemann's letter meets neither criterion. The fact that Eisemann is pro se does not relieve him of the duty of...
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