Rocco Marini, Josephine Marini, & T&R Knitting Mill, Inc. v. Harold Adamo, Jr., Lisa Adamo, the Bolton Grp., Inc.

• Decision Date: 06 February 2014
• Docket Number: No. 08–CV–3995 (JFB)(ETB).,08–CV–3995 (JFB)(ETB).
• Citation: 995 F.Supp.2d 155
• Court: U.S. District Court — Eastern District of New York
• Parties: Rocco MARINI, Josephine Marini, and T & R Knitting Mill, Inc., Plaintiffs, v. Harold ADAMO, Jr., Lisa Adamo, The Bolton Group, Inc., and H. Edward Rare Coins & Collectibles, Inc., Defendants.

995 F.Supp.2d 155

Rocco MARINI, Josephine Marini, and T & R Knitting Mill, Inc., Plaintiffs,

v.Harold ADAMO, Jr., Lisa Adamo, The Bolton Group, Inc., and H. Edward Rare Coins & Collectibles, Inc., Defendants.

No. 08–CV–3995 (JFB)(ETB).

United States District Court,

E.D. New York.

Feb. 6, 2014.

Michael H. Schaalman, Quarles & Brady LLP, Milwaukee, WI, Scott A. Moss and Marianna Moss, Moss Law Practice, Denver, CO, and Paul A. Brancato, Jamaica, NY, for Plaintiffs.

Richard Dolan, Robert Begleiter, and Andrew Harris, Schlam Stone & Dolan LLP, New York, NY, for Defendants.

MEMORANDUM AND ORDER

JOSEPH F. BIANCO, District Judge:

Plaintiffs Rocco Marini (“Marini”), Josephine Marini (“Mrs. Marini”), and T & R Knitting Mill (“T & R”) ¹ (collectively, “plaintiffs”) bring this action against Harold Adamo, Jr. (“Adamo”), Lisa Adamo (“Mrs. Adamo”), The Bolton Group, Inc. (“Bolton”), and H. Edward Rare Coins & Collectibles, Inc. (“H. Edward”) (collectively, “defendants”), asserting claims under Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (the “Exchange Act”), as well as claims of fraud, breach of fiduciary duty, unjust enrichment, and money had and received under New York common law. From 2002 to 2007, plaintiffs purchased or traded for eighty-six rare coins from Adamo. In 2008, plaintiffs discovered that these coins were worth significantly less than what they had paid for them. Plaintiffs allege that Adamo did not simply overcharge them for these items, but that Adamo committed fraud and other illegal actions over the course of their business relationship. Plaintiffs seek recovery of their out-of-pocket economic loss of $11,304,709, plus interest, as well as punitive damages in an amount equal to their out-of-pocket loss.

Having held a bench trial, the Court now issues its findings of fact and conclusions of law, as required by Rule 52(a) of the Federal Rules of Civil Procedure, and concludes, after carefully considering the evidence introduced at trial, the arguments of counsel, and the controlling law on the issues presented, that plaintiffs have met their burden of proof on all of their claims against defendants Adamo, H. Edward, and Bolton, including meeting their burden of proof under the “clear and convincing evidence” standard required to prove each element of the common law fraud claim. Specifically, the Court finds that plaintiffs have proven that they are entitled to the following relief: (a) Adamo, H. Edward, and Bolton are liable for violations of the Exchange Act, but the Court is requesting supplemental briefing on the issue of damages on this claim; ² (b) Adamo, H. Edward, and Bolton are liable for $11,304,079 in compensatory damages for committing common law fraud; (c) Adamo is liable for $11,304,079 in compensatory damages for violations of the breach of fiduciary duty; and (d) Adamo, H. Edward, Bolton, are liable for $11,304,079 in compensatory damages for unjust enrichment and money had and received. Plaintiffs are also entitled to prejudgment and post judgment interest. However, the Court, in its discretion, declines to award punitive damages.

As set forth in detail below, plaintiffs presented overwhelming evidence that Adamo defrauded Marini by making a series of false and material misrepresentations in order to induce Marini to buy numerous coins from Adamo, for investment purposes, at grossly inflated values over a period of several years. For example, Adamo purchased a 1988 $1 Morgan Silver Dollar in April 2003 for $200, and then sold that same exact coin to Marini in December 2003 for $100,000. Among Adamo's fraudulent oral misrepresentations to induce Marini to purchase coins were the following: (1) Adamo would be buying the same coins as Marini; (2) the coins were liquid and Marini could sell his coins within 24 to 48 hours; and (3) Adamo would only charge a small commission on each coin. Adamo knew these and other material statements were false when he made them. Adamo was able to perpetuate the fraud for several years, and induce Marini to buy additional coins usually at grossly inflated prices, by sending Marini written coin statements that contained false values for Marini's coins. The oral false statements, as well as the false values in the written coin statements, were material and reasonably relied upon by Marini. In reaching its verdict, the Court has carefully examined all of the evidence, including the credibility of each of the witnesses based upon their demeanor, and their answers to the questions in light of all of the evidence in the case. Mr. Marini's testimony was highly credible on each and every one of the key elements of the case and was often corroborated extensively by other evidence in the case, such as coin statements from Adamo, e-mails, taped recordings with Adamo, and wire records and checks. Marini testified that, in addition to the more than $11 million that Marini paid to Adamo for coins through checks and wire transfers, he also paid Adamo approximately $4.7 million in cash. Although Adamo vigorously disputed that such cash was provided to him, the Court found Marini's testimony on that issue to be fully credible in light of his demeanor and all the evidence in the case. In contrast, Adamo's testimony on each of the key issues was lacking in credibility based not only on his demeanor, but also based upon the internal inconsistencies in his testimony over time, the fact that much of his testimony was contradicted by other credible evidence in the case, and the fact that his testimony defied common sense in many instances. In short, the credible evidence offered by plaintiffs overwhelmingly proved their claims against Adamo, H. Edward, and Bolton, including compensatorydamages in the amount of $11,304,079.

With respect to the claims against Mrs. Adamo for unjust enrichment, as well as money had and received, the Court concludes that supplemental briefing is necessary to assist the Court in determining whether liability exists and, if so, the amount of such liability.

I. BACKGROUND

On September 30, 2008, plaintiffs filed their complaint alleging violations of the Exchange Act, the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq., as well as various causes of action under state law. Plaintiffs filed an amended complaint on October 17, 2008. On November 28, 2008, defendants filed a motion to dismiss, and the Court denied that motion on February 13, 2009. Defendants answered the complaint on March 2, 2009. After the completion of some discovery, plaintiffs filed a second amended complaint on June 22, 2010, and defendants answered on July 22, 2010.

On October 16, 2010, defendants moved for partial summary judgment on plaintiffs' securities fraud and RICO claims, as well as on plaintiffs' state law fraud, breach of contract, and New York General Business Law § 349 claims. On September 26, 2011, the Court granted defendants' motion with respect to the General Business Law claim, but denied the motion with respect to all other claims.

On April 11, 2012, the Court so-ordered a stipulation between the parties in which defendants agreed that the transactions at issue in this case constituted “securities” under the Exchange Act, and, in exchange, plaintiffs dismissed the RICO claim. (ECF No. 156.)

The Court held a bench trial beginning on October 22, 2012, and continuing over twelve days of testimony.³ The Court heard closing statements from both parties on April 12, 2013. Both sides submitted exhibits to be considered by the Court—including excerpts of depositions—as well as post-trial proposed findings of fact and conclusions of law.

The Court has fully considered all of the evidence presented by the parties, as well as their written submissions. Below are the Court's Findings of Fact and Conclusions of Law.

II. FINDINGS OF FACT

The following section constitutes the Court's Findings of Fact ⁴ pursuant to Federal Rule of Civil Procedure 52(a)(1). These Findings of Fact are drawn from witness testimony at trial and the parties' trial exhibits.

A. Marini's Cash Earnings

Marini began buying and selling “irregular” sweaters at flea markets in 1978, when he was 15 years old. (Tr. at 773–76.) Marini then transitioned to supplying these sweaters to flea market and street sellers at wholesale. ( Id. at 776–77.) Marini began generating significant revenue from this enterprise, and the payments were “primarily cash.” ( Id. at 780.) Marini testified that by his early twenties, he had “generated $5 million of cash.” ( Id. at 821.) As stated infra, Marini used this cash to partially fund his purchases of coins.

Defendants vigorously dispute Marini's version of events regarding the “cash hoard” story in their post-trial submissions, labeling it a “ridiculous [ ] fabrication”“from beginning to end.” (Defs.' Mem. at 8.) However, the Court finds Marini's testimony regarding the cash credible, and defendants have introduced no credible evidence to dispute plaintiffs' evidence besides baseless accusations.

In 1984, Marini and his father founded T & R. (Tr. at 362). Marini is currently the sole shareholder of the corporation. ( Id. at 888.)

B. Adamo the Coin Dealer

Adamo is employed as a buyer and seller of rare coins and collectibles ( id. at 1195) and is extremely knowledge about rare coins ( id. at 1203–06). Adamo founded H. Edward and Bolton and uses those companies to sell rare coins. ( Id. at 1195.) Adamo and his wife Mrs. Adamo are the sole owners and directors of Bolton and H. Edward; Adamo is the President of H. Edward and Bolton, while Mrs. Adamo is the Vice President of H. Edward. ( Id. at 1195–98.) The parties agree that Mrs. Adamo did not sell plaintiffs any coins or make any representations regarding the value of coins.⁵ (JPTO ¶ 17.)

C. The Parties' Friendship and the Beginning of the Coin Purchases

Mrs. Marini met Mrs. Adamo in May of 1992 when they both lived on the same block in Manhasset Hills, New...