Frydman v. Verschleiser

• Decision Date: 22 March 2016
• Docket Number: 14–cv–08084 (JGK), 14–cv–05903 (JGK)
• Citation: 172 F.Supp.3d 653
• Parties: Jacob Frydman, et al., Plaintiffs, v. Eli Verschleiser, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

172 F.Supp.3d 653

Jacob Frydman, et al., Plaintiffs,

v.Eli Verschleiser, et al., Defendants.

14–cv–08084 (JGK), 14–cv–05903 (JGK)

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

Signed March 22, 2016

Lewis Stanley Fischbein, Lewis S. Fischbein, P.C., New York, NY, for Plaintiffs.

Asher C. Gulko, Asher C. Gulko, Esq., Shmuel Kadosh, Steven Cooper, Reed Smith LLP, New York, NY, Andrew A. Kimler, Avrohom Y. Gefen, Vishnick, McGovern, Milizio, LLP, Lake Success, NY, David O. Wright, David O. Wright, Esq., Yorktown Heights, NY, for Defendants.

OPINION AND ORDER

JOHN G. KOELTL, District Judge:

This case involves two consolidated actions, United Realty v. Verschleiser, No. 14cv5903, 2015 WL 3498652 (S.D.N.Y. Jul. 30, 2014), and Frydman v. Verschleiser, 14cv8084 (S.D.N.Y. Oct. 7, 2014). These actions are the latest chapter in a long-running and acrimonious dispute between Jacob Frydman and Eli Verschleiser, former partners in a Real Estate Investment Trust (“REIT”). Each party has used judicial and extra-judicial scorched earth practices to torment the other party.

Before the Court are two motions to dismiss the plaintiffs' Consolidated Second Amended Complaint (“the Complaint”). The first motion to dismiss is brought by Verschleiser, Multi Group of Companies LLC (“Multi Group”), Raul Delforno, Ophir Pinhasi, and Alex Onica. The second motion is brought pro se by defendant David O. Wright, an attorney. In short, the defendants argue that the Court should abstain from exercising jurisdiction in favor of a pending state court action and, alternatively, that many of the plaintiffs' causes of action should be dismissed for failure to state a claim.

For the reasons explained below, the Court elects not to abstain from exercising jurisdiction; the motion to dismiss the Complaint filed by Verschleiser, Multi Group, Delforno, Pinhasi, and Onica is denied in part and granted in part ; and the motion to dismiss brought by Wright is granted in full .

I.

In deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the complaint are accepted as true, and all reasonable inferences must be drawn in the plaintiff's favor. McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir.2007). The Court's function on a motion to dismiss is “not to weigh the evidence that might be presented at a trial but merely to determine whether the complaint itself is legally sufficient.” Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir.1985). The Court should not dismiss the complaint if the plaintiff has stated “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). While the Court should construe the factual allegations in the light most favorable to the plaintiff, “the tenet that a court must accept as true all of the allegations contained in the complaint is inapplicable to legal conclusions.” Id. When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the complaint, documents that the plaintiff relied on in bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir.2002) ; see also Kerik v. Tacopina, 64 F.Supp.3d 542, 549–50 (S.D.N.Y.2014).

II.

A.

The consolidated actions before this Court are for injunctive relief and civil damages under (a) the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq. (“RICO”) based on predicate acts of mail fraud, 18 U.S.C. § 1341, and wire fraud, 18 U.S.C. § 1343 ; (b) the Computer Fraud and Abuse Act, 18 U.S.C. §§ 1030 et seq. (the “CFAA”); (c) the Electronic Communications Privacy Act, 18 U.S.C. §§ 2510 et seq. (the “ECPA”); (d) the Stored Communications Act, 18 U.S.C. §§ 2701 et seq. (the “SCA”); and (e) state law for a variety of torts, breach of contract, and indemnification.

The following factual allegations are taken from the Complaint and are accepted as true for purposes of the motions to dismiss.

From 2011 until late 2013, Frydman and Verschleiser were partners in several entities, including a broker-dealer, Cabot Lodge Securities, LLC, and a public non-traded REIT, United Realty Trust, Inc. (“United Realty”). Compl. ¶¶ 66–67. After a series of disagreements, their partnership came to an end in December 2013, whereupon Frydman alleges that he terminated Verschleiser's employment with United Realty for cause and served a termination notice on Verschleiser. Compl. ¶ 69.

The Complaint alleges that, subsequently, Verschleiser headed a criminal enterprise with the Wagnerian title “the Ring,” which was comprised of the defendants. The Complaint alleges that the Ring committed various acts of mail and wire fraud in a common effort “to harm Frydman and his companies ... by depriving them of customers and other business relationships, and to deceive the public both as part of that mission and independently....” Compl. ¶ 2.

The Complaint alleges six predicate acts of wire and mail fraud. The first predicate act allegedly began after Frydman and Verschleiser dissolved their partnership. Verschleiser then recruited defendant Delforno, the former head of information technology at United Realty, to give Frydman's computer password credentials to Verschleiser. Compl. ¶¶ 70–73. Verschleiser allegedly used those credentials on December 2, 2013 “to hack into and intercept the emails of United Realty employees, to create backups of its email data and trade secrets, and to download, copy and then delete all of that data from its email exchange servers.” Compl. ¶ 74. According to the Complaint, on December 3, Frydman notified his company's Internet service provider that Verschleiser was fired and not authorized to access the United Realty email system and Verschleiser was later locked out of the system. Compl. ¶¶ 75–76. Nevertheless, the Complaint alleges that Verschleiser gained unauthorized access to the email server on December 4, 2013, accessed Frydman's and others' emails, and denied Frydman access. Compl. ¶¶ 77–78.

Verschleiser allegedly feared having his termination publicly disclosed by a required Securities and Exchange Commission (“SEC”) filing. Therefore, he negotiated his departure from United Realty with a Membership Interests Sale and Purchase Agreement (the “Agreement”) signed shortly after midnight on December 4, 2013. Compl. ¶ 81. Pursuant to the Agreement, Verschleiser transferred his ownership interests in their jointly owned entities in exchange for certain payments. Compl. ¶ 81. Pursuant to Section 10 of the Agreement, Verschleiser agreed that for eighteen months, he would not employ or solicit the employment of individuals at United Realty and related entities and would not disparage or induce others to disparage Frydman or his business. Compl. ¶ 83. In Section 25 of the Agreement, Verschleiser also agreed “to restore all exchange servers, web hosting and [United Realty's and its related enterprises'] computer servers to their status on or before November 15, 2013 and to provide Frydman with all owner and administrative passwords by the close of business on December 5, 2013.” Compl. ¶ 84.

The Complaint alleges that Verschleiser, helped by other defendants, disregarded the Agreement and through December 10, 2013—a period the Complaint terms the “Initial Infiltration Period”—“illegally hacked into and intercepted the emails of United Realty employees, created back-ups of its email data and trade secrets, and downloaded, copied and then deleted all of that data from its email exchange servers....” Compl. ¶¶ 86–87; see also Compl. ¶¶ 88–101.

The Complaint alleges that the defendants committed a second predicate act of wire fraud during what it calls the “Ongoing Interception Period” that ran from December 2013 through at least March 2014. During this period, Verschleiser, assisted by other defendants, allegedly repeatedly accessed Frydman's email account using various technical methods. Compl. ¶ 102. Through these actions the defendants learned about several of Frydman's impending business transactions and allegedly sent or directed to be sent emails to potential business partners that defamed Frydman. Compl. ¶¶ 107–09. As a result of these emails, Frydman allegedly lost a $10 million loan and a $1.4 million sublease. Compl. ¶ 110.

The Complaint alleges that Verschleiser and several defendants committed a third predicate act of wire fraud beginning as early as March 21, 2014 when they disseminated fake reports, blogs, and social media posts that allegedly defamed Frydman by calling him a “fraud” and leveling similarly disparaging charges against him and his companies. See, e.g., Compl. ¶¶ 144–54.

The Complaint alleges that the defendants committed a fourth predicate act of wire fraud in September 2014 when Verschleiser and others “crashed” a broker-dealer conference in Nevada, distributed flyers and set-up posters around the convention that disparaged Frydman, and sent those posters through the mails or wires. Compl. ¶¶ 177–95.

The Complaint alleges a fifth predicate act of wire fraud occurred following this conference. The defendants allegedly created “numerous additional websites and posts containing false and fraudulent information with respect to Frydman, United Reality, and his other businesses.” Compl. ¶¶ 197; see also Compl. ¶¶ 205–06.

The Complaint alleges a sixth predicate act occurred in December 2014 when Verschleiser and Wright recruited Albert Akerman, an employee of United Realty and Cabot Lodge Securities, to steal “a highly confidential agreement for a transaction” among...