Red Ball Interior Demolition Corp. v. Palmadessa
| Decision Date | 28 November 1995 |
| Docket Number | No. 94 Civ. 4158 (RWS).,94 Civ. 4158 (RWS). |
| Citation | 908 F. Supp. 1226 |
| Parties | RED BALL INTERIOR DEMOLITION CORP. and John Palmadessa, Plaintiffs, v. Daniel PALMADESSA, Donald Palmadessa, William Palmadessa, Supreme Recycling, Inc., and Fortune Interior Dismantling Corp., Defendants. |
| Court | U.S. District Court — Southern District of New York |
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William Dunnegan, New York City, for Plaintiff.
Gutman & Gutman, Forest Hills, NY (S. Mac Gutman, of counsel), for Defendant Daniel Palmadessa.
Feldman, Gold & Wachtel, Roseland, NJ (Richard Feldman, of counsel), for Defendants Donald Palmadessa, William Palmadessa, Supreme Recycling, Inc. and Fortune Interior Dismantling Corp.
Defendant Daniel Palmadessa ("Daniel") has moved for dismissal of the Amended Complaint of plaintiffs Red Ball Interior Demolition Corporation ("Red Ball") and John Palmadessa ("John") pursuant to Rule 12(b)(6), Fed.R.Civ.P., for failure to plead claims upon which relief can be granted, to Rule 9(b) Fed.R.Civ.P., for failure to plead fraud with sufficient particularity, and to Rule 56(b), Fed.R.Civ.P., for summary judgment.
Daniel has also moved to strike certain allegations, pursuant to Rule 12(f); to dismiss or sever all claims and allegations in the Amended Complaint pertaining to Red Ball Recycling, Inc. ("Red Ball Recycling"), pursuant to Rule 42(b), or, in the alternative, to sever all claims pertaining to Supreme Recycling, Inc. ("Supreme") and Fortune Interior Dismantling Corp. ("Fortune"); to sever all claims pertaining to Secluded Acres Farm, Inc. pursuant to Rule 42(b); and to impose sanctions upon Plaintiffs pursuant to Rule 11.
In addition, Daniel has moved to compel Plaintiffs to relinquish a copy of the transcripts and notes of any deposition given by Avishai Oz ("Oz"); to direct a hearing, if required, to determine the facts surrounding the deposition of Oz; to dismiss the Amended Complaint; and to disqualify William Dunnegan ("Dunnegan"), counsel to Plaintiffs.
Red Ball has moved to disqualify Donald Horowitz, ("Horowitz"), counsel to Daniel, from representing any defendant in this action. Red Ball has also moved to compel Defendants Daniel, Donald Palmadessa ("Donald"), William Palmadessa ("William"), Supreme Recycling, Inc., and Fortune Interior Dismantling Corp. to submit a final pretrial order.
For the reasons discussed below:
1. Daniel's motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6) will be denied.
2. Daniel's motion to dismiss for failure to plead fraud with sufficient particularity pursuant to Rule 9(b) will be denied.
3. Daniel's motion for summary judgment pursuant to Rule 56 will be granted in part and denied in part. Specifically, Daniel's motion will be granted with regard to the First Claim, the RICO claim against Daniel; the Second Claim, for common law fraud against Daniel; and those elements of the other claims that pertain to the alleged diversion of funds to Daniel's Horse Farm that occurred prior to June 6, 1988. The motion will be denied with regard to all other claims.
4. Daniel's motion to strike certain allegations will be granted in part and denied in part. Specifically, Daniel's motion will be granted with regard to the allegations concerning settlement negotiations. The motion will be denied with regard to all other allegations.
5. Daniel's motion to sever or dismiss all claims and allegations pertaining to Red Ball Recycling will be denied.
6. Daniel's motion to sever or dismiss all claims and allegations pertaining to Fortune and Supreme will be denied.
7. Daniel's motion for Rule 11 sanctions will be denied.
8. Daniel's motion to compel Plaintiffs to relinquish a copy of the transcripts and notes of any deposition given by Oz will be granted.
9. Daniel's motion for a hearing to determine the facts surrounding the deposition of Oz will be denied.
10. Daniel's motion to dismiss the Amended Complaint in its entirety will be denied.
11. Daniel's motion to disqualify William Dunnegan will be denied.
12. Red Ball's motion to disqualify Donald Horowitz will be granted.
13. Plaintiffs' motion to compel Defendants to submit a final pretrial order will be granted.
Plaintiff John founded the family carting and demolition business which became Red Ball in 1958. He is Red Ball's sole shareholder at present. Defendant Daniel is John's brother and was his partner in several family businesses, including Red Ball. Daniel's sons, defendants Donald and William were employed by Red Ball and later incorporated Supreme and Fortune, both of which are New Jersey corporations.
As is discussed in detail below, in the face of a Rule 12(b)(6) motion to dismiss, a plaintiff's factual allegations are presumed to be true and all factual inferences are drawn in the plaintiff's favor. Therefore, the factual allegations set forth in this sub-section do not constitute findings of fact by the Court.
John went into the carting business in 1958. He was later joined by Daniel and they, along with John's wife, Mary Palmadessa ("Mary"), became the only shareholders in their first corporation in 1961. John and Daniel formed Red Ball in 1967. John and Daniel were Red Ball's only shareholders. Red Ball developed into a successful business.
From the late 1970's through 1986, John did not work full-time due to ill-health but shared equally with Daniel in the proceeds of the business. Daniel ran the financial aspects of Red Ball, and its operations were managed by employees. During these years Daniel installed William and Donald and an employee named Anthony Patrizio (who was loyal to Daniel rather than John) in key management positions within Red Ball.
From 1986 to 1993, Daniel mailed to John weekly financial statements regarding, inter alia, Red Ball's cash position and officers' loan accounts. Daniel also mailed to John Red Ball's annual financial report. These mailings failed to disclose Daniel's diversion of Red Ball's resources and business opportunities, discussed below.
In 1986, in view of John's failing health, Daniel and John entered into the 1986 Agreement, which required each to secure a life insurance policy on the other in the amount of $3 million, with himself as sole beneficiary. The 1986 Agreement provided that in the event of the death of either brother, the surviving brother would immediately pay the entirety of the life insurance proceeds to the deceased brother's estate in consideration for all of the deceased brother's shares of Red Ball. By the terms of the 1986 Agreement, sale of the deceased brother's shares by his estate for the $3 million insurance proceeds was mandatory.
At some time prior to November of 1987, Daniel began diverting labor and other assets of Red Ball to the improvement of a farm he owns in West Milford, New Jersey (the "Horse Farm"). By November 1987, Daniel had diverted more than $1.7 million from Red Ball to the improvement of the Farm.
In 1988, Daniel caused Red Ball to cease paying John's salary, which was John's only form of income from Red Ball. Also in 1988, Daniel had Mary, John's wife, ejected from Red Ball's corporate offices when she inquired into Red Ball's finances.
Also in 1988, Daniel caused the illegal dumping of debris at Secluded Acres Farm ("Secluded Acres"), a property adjacent to Daniel's Horse Farm. The debris came from the Horse Farm, and some may have come originally from the premises of Red Ball. Daniel was responsible for the dumping at Secluded Acres and knew that it was unlawful. The New Jersey Department of Environmental Protection (the "DEP") investigated the Secluded Acres site and commenced an administrative action against Daniel and Red Ball (the "DEP Action"). In addition, Daniel and Red Ball were indicted on criminal charges related to the dumping at Secluded Acres.
On December 9, 1988, after the indictment, Horowitz met with Daniel, and Daniel requested that Horowitz represent him and Red Ball in the criminal litigation. Horowitz asserts that he was never involved in litigating or considering the merits of the Secluded Acres Action. Instead, he sought an administrative consent order, or pretrial diversion (a "PTI"), for Daniel and Red Ball. In entering into the PTI, Daniel, seeking to divest himself of responsibility for the incident, obligated Red Ball for the costs of remediation of Secluded Acres, divesting himself of responsibility. Red Ball has expended over $100,000 to remediate the Secluded Acres site and to pay legal fees.
John instituted a proceeding seeking the court-ordered dissolution of Red Ball in New York State Supreme Court on January 30, 1989, alleging fraud and deadlock of directors. In the Matter of the Petition of John Palmadessa, Petitioner, For the Dissolution of Red Ball Interior Demolition Corporation, Pursuant to Sections 1104 and 1104-A of the BCL, and Daniel Palmadessa, Respondents, Index No. 1856/89. S. Mac Gutman ("Gutman"), counsel to Daniel in this action, represented both Red Ball and Daniel in that action. That action was dismissed on October 20, 1989.
At the same time, John instituted two related proceedings in the same court: In the Matter of the Petition of John Palmadessa, Petitioner, For the Dissolution of United City Contractors Co., Inc., Pursuant to Secs. 1104 and 1104-A of the BCL, and Daniel Palmadessa, Respondents, Index No. 02094/89, in which Gutman represented United City and Daniel, and In the Matter of the Petition of John Palmadessa, Petitioner, For the Dissolution of Palma Terminal, Inc., Pursuant to Secs. 1104 and 1104-A of the BCL, and Daniel Palmadessa, Respondents, Index No. 02095/89, in which Gutman represented Palma and Daniel. (These three proceedings are referred to as "the Dissolution Actions".)
In the course of the Dissolution Actions, Daniel denied under oath that any expenses had been...
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