Lugosch v. Congel

• Decision Date: 31 March 2006
• Docket Number: No. 5:00-CV-0784.,5:00-CV-0784.
• Citation: 443 F.Supp.2d 254
• Parties: J. Daniel LUGOSCH, III; Robert L. Ungerer; John A. Bersani; Edward A. Kellogg; John C. Charters; Peter C. Steingraber; Richard K. Askin; and William Tapella, Plaintiffs, v. Robert J. CONGEL, individually and as General Partner of Woodchuck Hill Associates, Riesling Associates, Madeira Associates, and Moselle Associates; Pyramid Company of Onondaga; Eklecco L.L.C.; Woodchuck Hill Associates, Riesling Associates, Madeira Associates, and Moselle Associates; James A. Tuozzolo; Robert Brvenik; Marc A. Malfitano; and Scott R. Congel, Defendants.
• Court: U.S. District Court — Northern District of New York

443 F.Supp.2d 254

J. Daniel LUGOSCH, III; Robert L. Ungerer; John A. Bersani; Edward A. Kellogg; John C. Charters; Peter C. Steingraber; Richard K. Askin; and William Tapella, Plaintiffs, v. Robert J. CONGEL, individually and as General Partner of Woodchuck Hill Associates, Riesling Associates, Madeira Associates, and Moselle Associates; Pyramid Company of Onondaga; Eklecco L.L.C.; Woodchuck Hill Associates, Riesling Associates, Madeira Associates, and Moselle Associates; James A. Tuozzolo; Robert Brvenik; Marc A. Malfitano; and Scott R. Congel, Defendants.

No. 5:00-CV-0784.

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

March 31, 2006.

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Michael Endler, Esq., Jeffrey S. Shelly, Esq., Boies, Schiller & Flexner, LLP, Albany, Daniel J. French, Esq., Green, Seifter Law Firm, Syracuse, Donald T. Kinsella, Esq., Office of Donald T. Kinsella, Albany, for Plaintiffs.

Anthony S. Fiotto, Esq., Christopher D. Moore, Esq., Kai W. Lyman, Esq., Paul Ware, Jr., Esq., Goodwin, Procter Law Firm, Boston, MA, Michael J. Cunningham, Esq., Iseman, Cunningham Law Firm, Albany, Nancy L. Pontius, Esq., Stephen T. Helmer, Esq., Mackenzie, Hughes Law Firm, Syracuse, for Defendants Robert J. Congel, Woodchuck Hill Associates, Riesling Associates, Madeira Associates, and Moselle Associates.

Gordon A. Coffee, Esq., Krista M. Enns, Esq., David Sharp, Esq., Winston, Strawn Law Firm, Washington, DC, Anthony S. Fiotto, Esq., Christopher D. Moore, Esq., Kai W. Lyman, Esq., Paul F. Ware, Jr., Esq., Goodwin, Procter Law Firm, Boston, MA, Michael J. Cunningham, Esq., Iseman, Cunningham Law Firm, Albany, Eric T. Dadd, Esq., Dadd, Nelson Law Firm, Attica, for Defendants Pyramid Company of Onondaga and EklecCo L.L.C.

Anthony S. Fiotto, Esq., Christopher D. Moore, Esq., Kai W. Lyman, Esq., Paul F. Ware, Jr., Esq., Goodwin, Procter Law Firm, Boston, MA, John M. Bray, Esq., Michael J. Ciatti, Esq., King, Spaulding Law Firm, Washington, DC, Nancy L. Pontius, Esq., Stephen T. Helmer, Esq., Mackenzie, Hughes Law Firm, Syracuse, Michael J. Cunningham, Esq., Iseman, Cunningham Law Firm, Albany, for Defendants Robert Brvenik, James A. Tuozzolo and Marc A. Malfitano.

Edward G. Melvin, Esq., Robert J. Smith, Esq., Costello, Cooney Law Firm, Syracuse, James P. Gillespie, Esq., Rebecca R. Anzidei, Esq., Kirkland, Ellis Law Firm, Washington, DC, Anthony S. Fiotto, Esq., Christopher D. Moore, Esq., Kai W. Lyman, Esq., Paul F. Ware, Jr., Esq., Goodwin, Procter Law Firm, Boston, MA, Michael J. Cunningham, Esq., Iseman, Cunningham Law Firm, Albany, for Defendant Scott R. Congel.

Michael J. Grygiel, Esq., McNamee, Lochner Law Firm, Albany, for Proposed Intervenor Capital Newspapers Division of the Hearst Corporation, publisher of the Albany Times Union and The Herald Company.

MEMORANDUM-DECISION AND ORDER

MORDUE, Chief Judge.

INTRODUCTION

This Memorandum-Decision and Order addresses eight motions in this action under Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961, et seq. ("RICO") and New York common law. There are six motions for summary judgment by defendants as follows: motion by Robert J. Congel (Dkt. No. 323); motion by James A. Tuozzolo (Dkt. No. 324); motion by Robert Brvenik and Marc A. Malfitano (Dkt. No. 325); motion by Scott R. Congel (Dkt. No. 326); motion by Madeira Associates, Moselle Associates, Riesling Associates, and Woodchuck Hill Associates (Dkt. No. 327); and motion by EklecCo LLC and Pyramid Company of Onondaga (Dkt. No. 328). The Court also addresses herein an appeal/motion for reconsideration by Moselle Associates, Madeira Associates, Riesling Associates, Woodchuck Hill Associates, James A. Tuozzolo and Robert J. Congel (Dkt. No. 268), and a motion to amend the joint stipulation and order regarding dispositive motion deadlines by Robert Brvenik, Robert J. Congel, Scott R. Congel, EklecCo LLC, Madeira Associates, Marc A. Malfitano, Moselle Associates, Pyramid Company of Onondaga, Riesling Associates and James A. Tuozzolo (Dkt. No. 382).

THIRD AMENDED COMPLAINT

Factual Allegations

The factual allegations in the Third Amended Complaint are as follows.¹

Partnerships

Defendant Robert J. Congel ("R.J. Congel") and his various family entities conduct business under the business name "The Pyramid Companies" ("Pyramid"). Pyramid develops and operates shopping centers and has built up a portfolio of more than 20 regional shopping malls and community shopping centers (collectively the "Portfolio").

Plaintiffs are minority general partners ("Partners") in ten general partnerships ("Partnerships"); each Partnership developed and owns a regional shopping mall or community shopping center ("Partnership Property"). The majority interest in each Partnership is held by R.J. Congel individually and as general partner in one of the following four partnerships, all of which are controlled by R.J. Congel: Woodchuck Hill Associates ("WHA"), Riesling Associates, Madeira Associates and Moselle Associates (collectively, "Family Partnerships").

Each Partnership is governed by a Partnership Agreement, all of which are substantially similar. Each Partnership Agreement establishes a three-partner Executive Committee to manage the particular Partnership, but permits the partners to overrule or modify any action of the Executive Committee by a vote of at least 51% of the total Partnership percentages. According to the Third Amended Complaint, the Executive Committees have been completely inactive and the Partnerships have been managed exclusively by R.J. Congel.

Among other provisions, the Partnership Agreements require monthly distributions to all Partners of monthly income in excess of expenses, prohibit commingling of Partnership funds, and require that full and accurate financial reporting and accounting be available to every Partner. Plaintiffs claim that R.J. Congel, acting in concert with the other defendants, has intentionally, repeatedly and illegally violated the Partnership agreements. The Third Amended Complaint states:

The foundation of this action is the illegal and fraudulent scheme of Defendant Robert J. Congel to exploit and drain an otherwise profitable group of shopping malls, and to use the income generated by those malls as his own private checking account. As a result of that corrupt scheme, Defendants have defrauded Plaintiffs, and the other minority partners in those shopping malls, out of millions of dollars in profits, assets and financial opportunity. (Third Amended Compl. ¶ 1.)

Pyramid Management Group ("PMG")

Each Partnership's Partnership Agreement provides that the Partnership may hire a managing agent to lease and manage the Partnership Property. Each Partnership has entered into a Management Agreement with Pyramid Management Group ("PMG") whereby PMG manages the Partnership Properties. PMG is owned by the four Family Partnerships. The Partnership Agreements require consent by 70% of all percentage interests of partners for a Partnership to enter into a contract with an "affiliated" company such as PMG, but consent has never been obtained. Nor has PMG complied with many provisions of the Management Agreements, such as reporting the financial condition of the Partnership Properties on a monthly basis, maintaining separate bank accounts for each Partnership Property, refraining from commingling each Partnership's funds with funds of other Partnerships or non-Partnership entities, and using Partnership funds for Partnership purposes only.

The Third Amended Complaint claims that PMG has regularly, intentionally, and continuously failed to provide financial reports to plaintiffs; intentionally provided— via mail and/or wire—false and misleading financial information to the Partners; intentionally, systematically and continuously commingled—via mail and/or wire— Partnership monies with funds of unrelated business entities controlled by R.J. Congel; and actively engaged in and permitted the conversion of Partnership funds for non-Partnership uses. Plaintiffs further claim that PMG has intentionally, systematically and repeatedly overcharged the Partnerships for management and leasing of Partnership Properties, and has concealed its wrongdoing by withholding financial reports from Partnerships and intentionally providing misleading financial information.

Fraudulent Scheme

The Third Amended Complaint avers that defendants perpetrated a fraudulent scheme upon plaintiffs and other minority partners by providing false and misleading information. Defendants provided only superficial financial reporting, which gave the appearance that the affairs of the Partnerships were reasonably well handled by defendants and that the Partnership Properties were reasonably well managed by PMG. In the 1990's, R.J. Congel incurred cost overruns in the construction of Carousel Mall ("Carousel"), owned by defendant Pyramid Company of Onondaga ("PCO"), which has no relationship to the Partnerships. These problems were compounded by debt relating to Palisades Center Mall ("Palisades"), owned by defendant EklecCo, which also has no relationship with the Partnerships. Other financial strains arose from a series of strip center projects developed by R.J. Congel and his son, defendant Scott Congel, through S & R Group, Inc. ("S & R").

Plaintiffs allege that R.J. Congel and the Family Partnerships used their majority interests in Pyramid Crossgates Company ("Crossgates") (owner of Crossgates Mall, in which plaintiffs Robert L. Ungerer and J. Daniel Lugosch, III are minority partners) and Pyramid Company of Buffalo ("Buffalo") (owner of Walden Galleria, in which plaintiffs Ungerer and Peter C. Steingraber are minority partners) to compel Crossgates and Buffalo to participate in forming a limited partnership, Bonwit Teller L.P. ("Bonwit") to fund the acquisition of the Bonwit Teller department store chain. The general partner in Bonwit is Bontel Corporation, which is owned and...