Lewis Family Grp. Fund v. JS Barkats PLLC

Decision Date31 March 2021
Docket Number16-CV-5255 (AJN) (JLC)
PartiesLEWIS FAMILY GROUP FUND LP, et al., Plaintiffs, v. JSBARKATS PLLC, et al., Defendants.
CourtU.S. District Court — Southern District of New York

REPORT AND RECOMMENDATION

JAMES L. COTT, United States Magistrate Judge.

To the Honorable Alison J. Nathan, United States District Judge: Plaintiffs Lewis Family Group Fund LP, LF Fund GP LLC, and Kelly Ann Lewis brought this action against defendants Sunny J. Barkats, JSBarkats PLLC, and Sunny Sky Realty, LLC seeking, inter alia, monetary relief for RICO claims and related common law claims, including common law fraud, and intentional and negligent infliction of emotional distress. On July 11, 2019, the Court entered a default in favor of plaintiffs. The case was subsequently referred to me to conduct an inquest into damages. For the reasons set forth below, I recommend that defendants be held jointly and severally liable for $405, 000 in RICO treble damages, as well as for prejudgment interest on that award at a rate of 9% per annum, and for $164, 541.65 in compensatory damages on plaintiffs' negligent infliction of emotional distress claim.

I. BACKGROUND
A. Facts

The following facts, which are drawn from a review of plaintiffs' pleadings, affidavits, and submissions related to this inquest, “are deemed established for the purpose of determining the damages to which they are entitled.” Salazar v. 203 Lena Inc., No 16-CV-7743 (VB) (JLC), 2020 WL 5627118, at *1 (S.D.N.Y. Sept. 18, 2020) (citing City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 137 (2d Cir. 2011)), adopted by 2020 WL 6257158 (S.D.N.Y. Oct. 23, 2020).

Plaintiffs are Lewis Family Group Fund LP f/k/a Lewis Family Investments Fund, LP, a Delaware limited partnership doing business in California, its general partner LF Fund GP LLC, also a Delaware limited partnership doing business in California (together, the Lewis Family Fund), and Kelly Ann Lewis (Lewis), an individual who lives in California (collectively, Plaintiffs). Second Amended Complaint, dated May 5, 2017 (“SAC”), Dkt. No. 71, ¶¶ 14-16. The remaining defendants are Sunny J. Barkats, an attorney based in New York City, JSBarkats PLLC (JSB PLLC), his New York-based law firm, and Sunny Sky Realty, LLC, a New York limited liability company and real estate brokerage firm (collectively, Defendants or “Barkats Defendants). Id. ¶¶ 17-19.[1]

Lewis established a relationship with Barkats in late 2014 through her brother Ryan Lewis, who had been discussing legal representation with Michael Wheeler, an associate at JSB PLLC. Id. ¶ 29. After one meeting with Lewis, her brother, and her father, Barkats sent Lewis a retainer agreement. Id. ¶¶ 31-32. Barkats-nor anyone at JSB PLLC-never advised Lewis that there was “a significant risk that Ba[r]kats' professional judgment on behalf of [ ] Plaintiffs would be adversely affected by Barkats' own . . . interest.” Id. ¶ 34.

Barkats originally sent Lewis a copy of a proposed retainer agreement on December 1, 2014. Id. ¶ 35. On January 6, 2015, Barkats sent a new retainer agreement and, through a series of emails, misrepresented the contents of the new retainer agreement, to which he made material changes that were increasingly favorable to his financial interests. Id. ¶¶ 36-44. The new agreement-which Lewis signed on January 7, 2015 in reliance on Barkats' various misrepresentations-provided that Lewis would wire a minimum of $250, 000 into a commercial bank account to be created by Barkats, and not a lawyer's escrow account as provided by the original proposed retainer and as required by Rule 1.15 of the Rules of Professional Conduct. Id. ¶¶ 47-49.[2]

On January 16, 2015, JSB PLLC organized the Lewis Family Investments Fund LP as a Delaware limited partnership, and its general partner, LF Fund GP, LLC, as a Delaware limited liability company. Id. ¶ 51. Without properly advising Lewis, Barkats convinced her to sign the limited partnership agreement and the operating agreement “based on false and fraudulent pretenses as to their true relevance or purported exigent circumstances.” Id. ¶ 55; see generally ¶¶ 55-61 (detailing emails and misrepresentations surrounding Lewis' signing of agreements). In addition, without advising Lewis of the changes, Barkats inserted several provisions in the agreements that gave Barkats unilateral discretion to use the Lewis Family Fund's $260, 000 investment capital (the amount that had been invested, $10, 000 more than the minimum), allowed Barkats to advise Sunny Sky Realty to engage in activities in direct competition to the Lewis Family Fund, and mandated joint consent of both Lewis and Barkats to terminate the partnership, essentially allowing Barkats to give himself “perpetual control” of the Lewis Family Fund. Id. ¶¶ 64-67.

On February 3, 2015, Barkats opened a commercial bank account with Chase in the name of “Lewis Family Fund Investment, ” for which he was the sole signatory, and proceeded to use the account for Defendants' personal use without any consent or authority from Plaintiffs. Id. ¶¶ 69-78. Of the original $260, 000 that Lewis wired to the account, $145, 740 was disbursed or invested by Defendants since February 9, 2015, including: (1) $15, 000 disbursed to JSB PLLC as monthly legal fees; (2) $100, 000 transferred to Barkats' personal account on May 28, 2015, of which Barkats used $90, 000 to buy an investment property in Irvington, New Jersey; (3) $30, 000 used to purchase, on September 1, 2015, without Lewis's knowledge or consent, common stock of Mobileye, a technology company; (4) $554.29 withdrawn as ATM charges by Barkats, who had an ATM card made for himself, for restaurant meals, parking lots, taxis, and other expenditures, without Lewis's knowledge or consent; and (5) $185.71 deducted by Chase as bank charges for printing a checkbook and miscellaneous items. Id. ¶¶ 75-76, 78. In addition, Barkats transferred the profits of the Lewis Family Fund's only bridge loan to himself, JSB PLLC, and Sunny Sky Realty. Id. ¶¶ 79-83.

Starting in mid-October 2015, after being repeatedly asked for a full accounting of the Lewis Family Fund, Barkats sent a series of emails lying to Lewis about the fund and delaying a full accounting. Id. ¶¶ 95-100. After receiving copies of the bank records from Chase, Lewis withdrew the remaining $111, 700 in the account and terminated the retainer agreement with JSB PLLC verbally on October 21, 2015 and in writing on October 27, 2015. Id. ¶¶ 107-08. On October 27, 2015, Barkats contacted Chase, claiming the he had sole management rights to the money in the Lewis Family Fund, and that the transfer of the money to Lewis was unauthorized. Id. ¶ 110. Chase eventually filed an interpleader action in the Superior Court of California, Los Angeles County-Central District, captioned JPMorgan Chase Bank, NA v. Lewis Family Investments Fund LP, LF Fund GP, LLC, Sanny J. Barkats a/k/a Sunny J. Barkats, Kelly Ann Lewis and Does 1 through 100, Case No.: BC602252 (“California Interpleader Action”). Id. ¶ 111. After numerous delays and motions on Barkats' part, the California court rendered a judgment favorable to Plaintiffs. Id. ¶ 112.

As part of their Second Amended Complaint, Plaintiffs identified several similar frauds and schemes by Defendants dating back to January 1, 2013, including defrauding the rapper Lil' Kim, id. ¶¶ 115-23; the soccer player Pinhas Zahavi, id. ¶¶ 124-37; and the companies InoLife Technologies Inc., Eastern Institutional, Darling Capital LLC, and U.S. Suite LLC, id. ¶¶ 138-94.

The Second Amended Complaint includes claims for relief against Defendants for RICO (count one), RICO conspiracy (count two), breach of contract (count three), breach of fiduciary duty/legal malpractice (count four), conversion (count five), constructive trust (count six), fraudulent inducement (count seven), theft of business opportunities (count eight), accounting (count nine), temporary and permanent injunctive relief (count ten), intentional infliction of emotional distress (count thirteen), and negligent infliction of emotional distress (count fourteen).

B. Procedural History

Plaintiffs filed their original complaint on July 1, 2016 (Dkt. No. 1), their first amended complaint on July 29, 2016, (Dkt. No. 24), and their second amended complaint on May 10, 2017 (Dkt. No. 71). Defendants submitted their answer to the SAC on June 22, 2017. Dkt. No. 86. After a case management conference on January 26, 2018, Defendants indicated they would file a motion for summary judgment, but after requesting extensions on February 22, 2018 (Dkt. No. 180), August 24, 2018 (Dkt. No. 190), and October 4, 2018 (Dkt. No. 192), they never submitted one.

On November 2, 2018, Defendants submitted a letter-motion requesting a stay of these proceedings in light of a sealed New York state grand jury indictment against Barkats that purportedly implicated the same transactions involved in this case. Dkt. No. 195. However, Defendants failed to demonstrate any relation between the indictment and this case, and on December 17, 2018 (Dkt. No. 205), I denied the request for a stay, and directed the parties to comply with the Court's order to submit a joint letter in preparation for trial. See Dkt. No. 194. Instead of filing a joint letter, Defendants' counsel moved to withdraw as counsel on December 26, 2018 (Dkt. No. 206), and again on January 30, 2019 (Dkt. No. 213). After the Court approved the withdrawal and a substitution of counsel on February 5, 2019 (Dkt. No. 215), and set a trial schedule on February 15, 2019, Plaintiffs submitted two letters informing the Court that they had been unable to contact Defendants' counsel. Dkt. Nos. 219, 241.

On May 10, 2019, at the deadline for pretrial submissions Defendants' new counsel...

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