Greenberg v. Shak
| Decision Date | 18 June 2018 |
| Docket Number | INDEX NO. 606938/2017 |
| Parties | MARTIN GREENBERG, STERLING COMMODITIES CORPORATION, and G. MARTIN ASSOCIATES INC., Plaintiffs, v. DANIEL SHAK, SHK MAMANGEMENT, LLC, SHK ASSET MANAGEMENT, LLC, SHK DIVERSIFIED, LLC., HOWARD MALZBERG, BERMAIN IRIZARRY, JR., LPS FUTURES LLC., and JOHN DOE # 1 through JOHN DOE # 10, said names being fictitious and intended to designate persons and entities who participated with the named defendants in the acts complained of herein, Defendants. |
| Court | New York Supreme Court |
SHORT FORM ORDER
Present:HON. TIMOTHY S. DRISCOLL Justice Supreme Court
The following papers have been read on these motions:
This matter is before the court on 1) the motion filed by Defendants Daniel Shak ("Shak"), SHK Management, LLC ("SHK1"). and SHK Diversified, LLC ("SHK3") on November 10, 2017, 2) the motion filed by Defendant LPS Futures, LLC ("LPS") on December 18, 2017, and 3) the motion filed by Defendants Howard Malzberg ("Malzberg") and Bermain Irizarry, Jr. ("Irizarry") on March 5, 2018. The Court held oral argument on the motions on May 18, 2018, and submitted the motions thereafter.
For the reasons set forth below, the Court grants the motions to the extent that the Court:
The Court also limits Plaintiffs' claim in the ninth cause of action to the assertion of a cause of action against LPS and Shak for aiding and abetting the conversion and misappropriation of corporate assets by Malzberg, but not by Irizarry. The Court reminds counsel for Plaintiffs, and counsel for Defendants Shak, Malzberg and LPS, of their required appearance before the Court for a Preliminary Conference on July 23, 2018 at 9:30 a.m.
Defendants Shak, SHK1 and SHK3 (collectively, the "Shak Defendants") move for an Order, pursuant to CPLR §§ 3211(a)(1), (3), and (7), 3013 and 3016, and General Obligations Law ("GOL") § 5-701, dismissing this action against the Shak Defendants.
Defendant LPS moves for an Order, pursuant to CPLR §§ 3211(a)(3) and (7), 3013 and 3016, dismissing this action against LPS.
Defendants Malzberg and Irizarry move for an Order, pursuant to CPLR § 3211(a)(7), 3013 and 3016, dismissing this action against Defendants Malzberg and Irizarry.
Plaintiffs Martin Greenberg ("Greenberg"), Sterling Commodities Corporation ("Sterling") and G. Martin Associates Inc. ("GMA") ("Plaintiffs") oppose the motions.
As noted in the Prior Order, the complaint in this action alleges as follows:
Greenberg was and is a shareholder, officer and director of Sterling and GMA. Sterling, which Greenberg founded, provides services and support to individuals and institutions transacting business on the various commodity exchanges. Shak is a commodity contracts trader who has traded and continues to trade commodity contracts on the New York Mercantile Exchange and Chicago Mercantile Exchange ("CME"). Shak was and is the sole shareholder, officer and director of Defendants SHK1, SHK Asset Management, LLC ("SHK2") and SHK3. Plaintiffs allege that Shak exercised complete control over SHK1, SHK2 and SHK3 and they were alter egos of each other. Defendant Malzberg was an officer and employee of Sterling whose duties included overseeing Sterling's daily business operations. Defendant Irizarry was an employee at Sterling and assisted Malzberg in overseeing Sterling's daily business operations. LPS is a direct competitor of Sterling, by whom Defendants Malzberg and Irizarry are now employed, and with whom Shak now trades his commodities and futures accounts.
Sterling initially provided services to its clients as a "Futures Commission Merchant" or "Clearing House" (Comp. at ¶ 44). A Clearing House solicits or accepts orders for commodity contracts traded on an exchange and holds client funds to margin.
On or about May 1, 2014, Sterling ceased providing services as a clearing house and began providing services to its trading customers as an "Introducing Broker" (Comp. at ¶ 45) which, similar to a Clearing House, solicits or accepts orders for commodity contracts traded on an exchange. Unlike a Clearing House, however, an Introducing Broker does not hold customer funds to margin. When Sterling became an Introducing Broker, it used the services of Int'l FC Stone ("FC Stone") as a clearing house for its trading customers. All clients and employees of Sterling, including Malzberg and Irizarry, were required to sign written agreements with FC Stone that contained restrictions on the dissemination of confidential information including, but not limited to, financial data and client information relating to Sterling's business operations.
Shak was a regular customer of Sterling for decades, due in large part to his reliance on Greenberg who assisted Shak in resolving problems over the years related to his trading activities. The Complaint outlines those problems (see Comp. at ¶¶ 49-65), which included enforcement actions by the United States Commodity Futures Trading Commission ("CFTC"), an independent federal agency created in 1974 to regulate commodity futures and option markets. As a result of admissions made by Shak in the CFTC enforcement actions, the CME imposed a further sanction which resulted in Shak being banned from participating in anincentives program offered by the CME pursuant to which, inter alia, the CME issues rebates in the form of discounted fees to commodity contracts traders who satisfy certain minimum trading volume requirements ("CME Rebates").
Shak asked Greenberg to advocate for him before the CME in seeking to have his CME Rebate privileges restored. In light of Shak's past history of trading violations and being the subject of CFTC enforcement actions, Greenberg was reluctant to assist Shak because the help that Shak needed would require Greenberg to put his personal reputation at risk. To induce Greenberg to assist him in resolving this matter, on or about August 26, 2015, Shak offered, in writing, to pay Greenberg 30% of all CME Rebates which he would earn in the future, on a monthly basis, for as long as the rebates were granted to Shak by the CME (the "Agreement"), if Greenberg succeeded in persuading the CME to reinstate Shak's rebate privileges. Greenberg accepted Shak's offer and agreed to advocate on Shak's behalf to the CME. Greenberg, based on his good reputation and personal relationship with members of the commodities trading industry, was able to negotiate a resolution with the CME, which resulted in Shak being granted the right to again participate in the CME Rebate program. Greenberg was required to offer his personal assurances that he would oversee Shak's future trading activities to ensure that Shak was in compliance with all trading rules, as a condition of the restoration of Shak's ability to participate in the Rebate program.
At or about the time that Shak's Rebate privileges were reinstated, Greenberg assigned his rights under the Agreement to GMA, a corporation in which Greenberg is a 50% shareholder. Pursuant to the Agreement, beginning in October 2015, Shak paid 30% of the CME Rebate commissions that he received to GMA, on a monthly basis. Shak, however, has failed to make payments due under the Agreement for commissions earned since February 2017. Greenberg has demanded an accounting in accordance with the Agreement but Shak has failed to provide that accounting.
Shak, who had been a long time customer of Sterling, left Sterling in March 2017 to trade his account through LPS, who is Sterling's direct competitor. Plaintiffs allege that the timing of Shak's departure from Sterling is a direct consequence of a scheme orchestrated by Shak, together with Malzberg. Irizarry and LPS, to misappropriate Sterling's clients, accounts, business assets and confidential information as to its trading practices. Greenberg previously gave Malzberg a power of attorney to act on Greenberg's behalf in overseeing Sterling's operations, and entrusted him with Sterling's confidential information and trade secrets. Irizarrywas also provided with Sterling's confidential information and trade secrets, including the needs of Sterling's clients and customers, services and products. Plaintiffs allege that, on the day after their...
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