Cohen v. Cohen

• Decision Date: 27 January 2014
• Docket Number: No. 09 CIV. 10230 WHP.,09 CIV. 10230 WHP.
• Citation: 993 F.Supp.2d 414
• Parties: Patricia COHEN, Plaintiff, v. Steven COHEN et al., Defendants.
• Court: U.S. District Court — Southern District of New York

993 F.Supp.2d 414

Patricia COHEN, Plaintiff,

v.Steven COHEN et al., Defendants.

No. 09 CIV. 10230 WHP.

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

Jan. 27, 2014.

Joshua Lewis Dratel, Law Offices of Joshua L. Dratel, P.C., New York, NY, Kevin Peter Roddy, Wilentz, Goldman & Spitzer, P.A., Woodbridge, NJ, for Plaintiff.

Martin B. Klotz, Willkie Farr & Gallagher LLP, New York, NY, for Defendants.

MEMORANDUM & ORDER

WILLIAM H. PAULEY III, District Judge.

Plaintiff Patricia Cohen brings this action for fraud, breach of fiduciary duty, and violations of the Racketeer Influenced and Corrupt Organizations (“RICO”) Act against her ex-husband, Steven Cohen, his brother, Donald Cohen, and Steven's former business partner Brett Lurie. Defendants Steven and Donald Cohen move to dismiss the third amended complaint (“the complaint”) under Federal Rule of Civil Procedure 12(b)(6). As the caption of this case suggests, this is a family dispute. The only thing that distinguishes it from countless others is the seemingly inexhaustible legal resources that each side has brought to bear. For the following reasons, Steven and Donald's motion is granted in part and denied in part.

BACKGROUND

I. Facts

The following facts are gleaned from the complaint and assumed to be true for the purposes of this motion. Patricia and Steven Cohen were married in 1979 and separated in 1988. (Third Amended Complaint (“Compl.”), dated Oct. 2, 2013, ECF No. 99, ¶¶ 13, 22.) Before separating, but after they had discussed the possibility of divorce, Steven founded SAC Trading Corporation (“SAC”) and served as its president and sole owner. (Compl. ¶¶ 13, 16.) He named his brother Donald as SAC's accountant and treasurer. (Compl. ¶ 16.) Donald had acted as Patricia and Steven's personal accountant and financial advisor. (Compl. ¶ 18.) Steven also appointed his attorney Brett Lurie as SAC's secretary and counsel. (Compl. ¶ 16.) Lurie had represented both Patricia and Steven in various legal matters. (Compl. ¶ 18.) SAC held all of Patricia and Steven's marital assets, except their apartment. (Compl. ¶ 16.)

Shortly after SAC's formation, Steven invested $8,745,169 with Lurie in various cooperative apartment conversions in Queens, New York (“the Lurie Investment”). (Compl. ¶ 17.) The project failed. In late 1986, Steven and Donald told Patricia that the Lurie Investment was lost, although the loss could not be recognized until the “properties went into foreclosure or bankruptcy.” (Compl. ¶ 20.) Steven sued Lurie over that real estate investment. In 1987, Steven received a $5.5 million settlement from Lurie but never informed Patricia. (Compl. ¶ 39.)

When Patricia and Steven separated in 1988, Steven—with Donald's assistance—prepared a “Statement of Financial Condition” in connection with the separation agreement. (Compl. ¶ 22.) The statement listed the couple's marital assets as totaling approximately $17 million, including $8,745,169 representing the Lurie Investment. (Compl. ¶ 22.) During negotiations over the separation agreement, with both parties represented by counsel, Steven reiteratedthat the Lurie Investment was lost, but the loss could not be recognized until the properties went into bankruptcy or foreclosure. (Compl. ¶ 24.) He buttressed his representation regarding the Lurie Investment with documents and an acknowledgment by his lawyer that the money was lost. (Compl. ¶ 24.)

In December 1989, Patricia and Steven executed a separation agreement in which each of them “acknowledged a degree of familiarity with and knowledge of the financial circumstances of the other....” (Decl. of Martin Klotz, dated Oct. 16, 2013 (“Klotz Decl.”), ECF No. 104, Ex. B at ¶ 14.4.) The agreement also provided that Steven “makes no representation as to the value of [the Lurie Investment.]” (Klotz Decl. Ex. B. at ¶ 14.4.) They also acknowledged that “complete financial disclosure ... ha[d] not been obtained, but both parties ... advised their counsel that they [were] ... unwilling to litigate the issues....” (Klotz Decl. Ex. B at ¶ 14.5.) In a belt-and-suspenders approach, Patricia and Steven's separation agreement also provided that “[it] ha[d] been achieved after what [Patricia and Steven] consider[ed] to be sufficient disclosure, consultation with legal representatives and bona fide negotiations.” (Klotz Decl. Ex. B at ¶ 14.7.) Finally, the separation agreement provided a merger clause stating that the agreement “embodie[d] all understandings and agreements between the parties” and that “[n]o representations or warranties ha[d] been made by either party to the other, or by anyone else, except as expressly set forth in [the agreement].” (Klotz Decl. Ex. B at ¶¶ 19.3–19.4.) A judgment of divorce incorporating the terms of the separation agreement was entered March 13, 1990. (Klotz Decl. Ex. C.)

On March 21, 1991, Patricia moved for increased child support, maintenance, and other relief on grounds of economic duress, fraud, and unconscionability. (Klotz Decl. Ex. F at ¶ 2.) Patricia claimed she could not support the children in the style they were accustomed to during her marriage to Steven. (Klotz Decl. Ex. E at ¶¶ 14, 19.) At that time, Patricia alleged that Steven had filed a separate income tax return in 1989 to hide substantial income during negotiation of the separation agreement. (Klotz Decl. Ex. E at ¶ 4.)

Steven denied Patricia's allegations and insisted she had received more than her distributive share under the separation agreement. He asserted that when the $8,745,169 nominal value of the “totally worthless” Lurie Investment was subtracted, their marital assets at the time of separation were approximately $8,185,368 and that Patricia received “close to $5 million.” (Compl. ¶ 31.) Patricia withdrew her motion for increased support and maintenance. In January 1992 she and Steven amended their separation agreement to increase child support but did not revoke or alter any of the prior representations. ( See Klotz Decl. Ex. I.)

The Cohen family discord lay dormant until 2006 when Patricia read a disparaging article about Steven's former employer, Gruntal & Co. (Compl. ¶ 35.) Patricia learned that a Gruntal employee who had signed corporate documents relating to Steven's financial condition during the separation negotiations had been convicted of fraud. (Compl. ¶ 35.) She began to suspect that Gruntal and Steven had dissembled during the separation negotiations. (Compl. ¶ 36.) Patricia investigated further and discovered the existence of a lawsuit in New York county titled Cohen v. Lurie, No. 8981/87 (N.Y.Sup.Ct.). She learned for the first time that Steven had received $5.5 million in a settlement with Lurie. (Compl. ¶ 39.)

II. Procedural History

Patricia filed this action in December 2009. After changing counsel, she amended her complaint in April 2010. (First Amended Complaint, dated Apr. 7, 2010, ECF No. 19.) In the wake of a motion to dismiss, Patricia changed counsel again and amended her complaint for a second time. Then, Steven and Donald filed a new motion to dismiss.

On March 29, 2011, Judge Richard Holwell granted the motion and dismissed the second amended complaint. Cohen v. Cohen, 773 F.Supp.2d 373, 397 (S.D.N.Y.2011), vacated in part byCohen v. SAC Trading Corp., 711 F.3d 353 (2d Cir.2013). Patricia appealed.

On April 3, 2013, the Second Circuit affirmed Judge Holwell's dismissal of Patricia's unjust enrichment claim ¹ but vacated his dismissal of her fraud, breach of fiduciary duty, and RICO claims. Cohen v. SAC Trading Corp., 711 F.3d at 363–64. On remand the case was reassigned to this Court. (Notice of Case Reassignment, dated Apr. 24, 2013, ECF No. 65.)

On July 12, 2013, Steven and Donald renewed their motion to dismiss. (Mot. Dismiss Pl.'s Second Amended Compl. (Renewed), dated July 12, 2013, ECF No. 85.) Patricia, represented by yet another attorney, obtained leave to amend and filed a third amended complaint. Steven and Donald move to dismiss the third amended complaint. (Mot. Dismiss Pl.'s Compl., dated Oct. 16, 2013, ECF No. 102.)

DISCUSSION

I. Legal Standard

To survive a motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). To determine plausibility, courts follow a “two-pronged approach.” Iqbal, 556 U.S. at 679, 129 S.Ct. 1937. “First, although a court must accept as true all of the allegations contained in a complaint, that tenet is inapplicable to legal conclusions, and threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Harris v. Mills, 572 F.3d 66, 72 (2d Cir.2009). Second, a court determines “whether the ‘well-pleaded factual allegations,’ assumed to be true, ‘plausibly give rise to an entitlement to relief.’ ” Hayden v. Paterson, 594 F.3d 150, 161 (2d Cir.2010) (quoting Iqbal, 556 U.S. at 679, 129 S.Ct. 1937). Iqbal “requires assertions of facts supporting a plausible inference ... not of facts which can have no conceivable other explanation, no matter how improbable that explanation may be.” Cohen v. SAC Trading Corp., 711 F.3d at 360. On a motion to dismiss, courts may consider “facts stated on the face of the complaint, in the documents appended to the complaint or incorporated in the complaint by reference, and ... matters of which judicial notice may be taken.” Allen v. WestPoint–Pepperell, Inc., 945 F.2d 40, 44 (2d Cir.1991).

In addition, the Federal Rules of Civil Procedure impose a heightened pleading standard on complaints charging common law fraud and civil RICO claims sounding in fraud. SeeFed.R.Civ.P. 9(b); First Capital Asset Mgmt., Inc. v. Satinwood, Inc., 385 F.3d 159, 178 (2d Cir.2004) (“[A]ll allegations of fraudulent [RICO] predicate acts are subject to the heightened...