Northwestern Consultants, Inc. v. Bloom

• Decision Date: 29 May 2012
• Docket Number: 10 CV 5087 (SJF)(AKT)
• Parties: NORTHWESTERN CONSULTANTS, INC., a Nevada Corporation, BAY SHORE JOINT VENTURE, a Nevada Joint Venture, RUSSELL v. LUGLI, JOHN M. LOEFFLER and NEAL ZAMIL, Plaintiffs, v. ELIOT F. BLOOM, ELIOT F. BLOOM, P.C., a professional corporation, ELIZABETH A. BLOOM, HARRY FEINGOLD, FIRE ISLAND SEASHELL COMPANY, INC., a New York corporation d/b/a Savannah Development Co., LOUIS LADONNA, ALL SHORES DEVELOPMENT CO., a New York Corporation, and DOE DEFENDANTS 1-10, inclusive, Defendants.
• Court: U.S. District Court — Eastern District of New York

NORTHWESTERN CONSULTANTS, INC., a Nevada Corporation, BAY SHORE JOINT VENTURE,

a Nevada Joint Venture, RUSSELL v. LUGLI, JOHN M. LOEFFLER and NEAL ZAMIL, Plaintiffs,

v.ELIOT F. BLOOM, ELIOT F. BLOOM, P.C., a professional corporation, ELIZABETH A. BLOOM, HARRY FEINGOLD,

FIRE ISLAND SEASHELL COMPANY, INC., a New York corporation d/b/a Savannah Development Co.,

LOUIS LADONNA, ALL SHORES DEVELOPMENT CO.,

a New York Corporation, and DOE DEFENDANTS 1-10, inclusive, Defendants.

10 CV 5087 (SJF)(AKT)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

Dated: May 29, 2012

OPINION AND ORDER

FEUERSTEIN, J.

On November 3, 2010, plaintiffs Northwestern Consultants, Inc. ("Northwestern"), a Nevada corporation, and Russell V. Lugli ("Lugli") (collectively "plaintiffs"); Bay Shore Joint Venture ("BSJV"); John M. Loeffler ("Loeffler") and Neal Zamil ("Zamil") commenced this action against defendants Eliot F. Bloom ("Bloom"), Eliot F. Bloom, P.C., a professional corporation, and Elizabeth A. Bloom (collectively, "the Bloom defendants"); Harry Feingold ("Feingold") and Fire Island Seashell Company, Inc. ("FIS Co."), a New York corporation d/b/a Savannah Development Co. (collectively, "the Feingold defendants"); Louis LaDonna ("LaDonna"); All Shores Development Co. ("All Shores"), a New York corporation; and "DoeDefendants 1-10,"¹ alleging claims, inter alia, for "unlawful sale of securities," conspiracy, breach of contract, fraud, negligent misrepresentation, rescission, unjust enrichment, breach of fiduciary duty and "financial elder abuse." The Bloom defendants filed their answer to the complaint on November 23, 2010 and Feingold filed a pro se motion to dismiss the complaint pursuant to Rule 12(b) of the Federal Rules of Civil Procedure on December 30, 2010² .

On April 15, 2011, plaintiffs moved pursuant to Rule 15(a) of the Federal Rules of Civil Procedure to amend the complaint, inter alia, (1) to withdraw the claims (a) asserted on behalf of Loeffler and Zamil, both of whom indicated that they did not wish to prosecute the claims asserted on their behalf in this action, without prejudice pursuant to Rule 41(a)(2) of the Federal Rules of Civil Procedure,³ and (b) asserted on behalf of BSJV without prejudice pursuant to Rule41(a)(2) of the Federal Rules of Civil Procedure; and (2) to substitute the Estate of Harry Feingold for Feingold, deceased, pursuant to Rule 25(a) of the Federal Rules of Civil Procedure. Thereafter, the Bloom defendants cross-moved to dismiss the complaint (1) pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction or, (2) in the alternative, pursuant to Rule 12(b)(7) of the Federal Rules of Civil Procedure for failure to join an indispensable party. This action was reassigned to me on January 9, 2012, after Judge Bianco recused himself and before any determination on the pending motions. For the reasons set forth below, plaintiffs' motion is granted in its entirety and the Bloom defendants' cross motion is denied in its entirety.

I. Background⁴

A. Factual Background

1. The Parties

a. Plaintiffs

Northwestern is a Nevada corporation with its principal place of business in the State of California. (Compl., ¶ 2.1). Lugli is the CEO and president of Northwestern who, at all relevant times, resided in the State of California. (Compl., ¶ 2.2).

BSJV is a Nevada partnership between Northwestern and Bloom created for the purposeof undertaking the "financing, land development, construction, and sale of 24 entry level housing style housing units" on property owned by Northwestern and designated as lots 59A and 59B Second Avenue, Bay Shore, New York ("the subject property"). (Compl., ¶¶ 2.4, 3.1, Ex. A).

b. Defendants

Bloom is a resident of the State of New York and an attorney admitted to practice in the State of New York with a principal place of business in the State of New York. (Bloom Ans., ¶ 3). Plaintiffs allege: (1) that between March 22, 2006 and May 10, 2006, Bloom undertook to represent the interests of Northwestern and BSJV as their attorney in the State of New York, (Compl., ¶ 2.5); and (2) that Bloom is the sole shareholder and officer of the Law Offices of Eliot F. Bloom, P.C., and is the "control" person of that entity as defined in Section 20 of the Securities Act of 1934 ("the Securities Act"). (Compl., ¶ 2.6).

Elizabeth Bloom is Bloom's wife and is also a resident of the State of New York. (Compl., ¶ 2.7; Bloom Ans., ¶ 5).

Plaintiffs allege, inter alia: (1) that at all relevant times, Feingold was (a) a resident of the State of New York, (b) the sole shareholder and officer of FIS Co. and the "control" person of FIS Co. as defined in Section 20 of the Securities Act, (Compl., ¶ 2.8), (c) the vice president and forty-nine percent (49%) shareholder of Northwestern, (Compl., ¶¶ 5.3, 7.2.B(2), 8.4, 19.7), and (d) Lugli's investment advisor, (Compl., ¶¶ 19.5-19.6, 20.2-20.18); (2) that LaDonna is a resident of the State of New York who, at all relevant times, did business under the name of "LaDonna Properties," (Compl., ¶ 2.11); and (3) that Snider is a resident of the State of New York who, on or about October 5, 2007, purchased an interest in BSJV, (Compl., ¶ 2.12).

2. The Securities Sales

Plaintiffs allege that in March 2005 and on September 6, 2005, respectively, Bloom, as attorney for Loto World, Inc. ("LWI") and Raven Global Security, Inc. ("Raven"), both Nevada corporations, caused those companies to file articles of incorporation with the Secretary of State for the State of Nevada. (Compl., ¶¶ 5.1, 8.7). According to plaintiffs, both LWI and Raven were also authorized to do business, and had their principal places of business, in the State of California. (Compl., ¶¶ 5.1, 8.13).

Plaintiffs allege, inter alia: (1) that in March or April 2006, Feingold introduced Lugli to Bloom with the intent to persuade Lugli, through Northwestern, to invest in the common stock of LWI, (Compl., ¶¶ 8.1, 8.10, 19.8); (2) that from March or April 2006 until June 2009, Bloom acted as plaintiffs' attorney, (Compl., ¶ 8.6); and (3) that Bloom and Feingold participated in a "scheme" relating to the sale of securities pursuant to which, inter alia, (a) they advised Lugli that Bloom "had a very unique investment opportunity to purchase stock in [LWI and Raven]," (Compl., ¶¶ 5.1, 5.4-5.5, 7.2), (b) they made certain representations and misrepresentations to plaintiffs about LWI and Raven in order to induce them to purchase securities in those companies, (Compl., ¶¶ 8.11-8.12, 8.14.A-8.15, 8.18-8.20, 12.2), and (c) they agreed to split the proceeds of plaintiffs' investments and to conceal the true facts of the securities sales from plaintiffs, (Compl., ¶¶ 7.2(4) and (7), 8.16, 8.20). According to plaintiffs, Lugli, on behalf of Northwestern and in reliance upon Bloom's and Feingold's representations: (1) purchased six hundred thousand (600,000) shares of LWI's common stock for a total amount of three hundred thirty thousand dollars ($330,000.00) between April 28, 2006 and July 19, 2006; and (2)purchased one million shares (1,000,000) of common stock in Raven for the total amount of one hundred fifteen thousand dollars ($115,000.00) on August 14, 2006. (Compl., ¶¶ 5.2, 8.16, 12.3= 12.6).

Plaintiffs further allege, inter alia: (1) that Bloom (a) had been issued "promotional stock" i.e., shares of LWI's common stock, in consideration for his promise to provide legal services for LWI and Raven, (b) had paid no other consideration to receive that promotional stock and (c) had informed them that he would sell them some of his promotional shares at a mutually agreeable price, but had actually "intended at all times * * * [to] simply issue new certificates from the stock books of the corporations and keep the proceeds realized from sale of the common stock of either corporation," (Compl., ¶¶ 5.8-5.9, 7.2(5), 8.20); (2) that none of the shares of common stock issued by LWI or Raven had ever been registered with any federal or state jurisdiction, (Compl., ¶ 5.10); and (3) that Bloom and Feingold had advised them (a) that such registration was not required and (b) that Bloom was under no restriction in selling his promotional stock. (Compl., ¶¶ 7.2(6), 8.20). According to plaintiffs, they did not discover Bloom's misrepresentations until April or May of 2009. (Compl., ¶ 8.22).

3. The Property Sale and Joint Venture Agreement

Plaintiffs allege that pursuant to a May 2006 oral joint venture agreement between Northwestern and Bloom: (1) Northwestern was (a) to purchase the subject property in its own name for the purpose of developing it into a condominium property for sale to the general public by BSJV and (b) to be the borrower for the construction loan related to the development of the subject property; and (2) Bloom was to be given a forty percent (40%) interest in BSJV.(Compl., ¶¶3.1, 7.2.B). According to plaintiffs, Bloom and Feingold participated in a "scheme" relating to the sale of the subject property, pursuant to which, inter alia: (1) they made certain representations to Northwestern upon which it relied in agreeing to form BSJV, including, inter alia, the Bloom had connections which would enable him to facilitate the purchase of the subject property, (Compl., ¶¶ 3.2, 7.2.B(1), 19.8); (2) they agreed (a) to conceal the facts about the initial purchase of the subject property by LaDonna and their involvement therein from plaintiffs ⁵ , (Compl., ¶ 7.2.B(4)), and (b) to divide any money raised, but not required to actually effect the purchase of the subject property, between themselves, (Compl, ¶ 7.2B(5)); and (3) Feingold had advised Lugli that Northwestern needed to wire Bloom the sum of three hundred fifty thousand dollars ($350,000.00) for the purchase of the subject property, (Compl., ¶ 4.3). Northwestern wired the amount of three hundred fifty thousand dollars ($350,000.00) to the trust account of Bloom on or about May 5, 2006. (Compl., ¶¶ 4.4, 10.2; Bloom Ans., ¶...