Spota v. White

• Decision Date: 01 May 2014
• Docket Number: No. 29681–12.,29681–12.
• Citation: 997 N.Y.S.2d 101 (Table)
• Parties: Thomas J. SPOTA, District Attorney of Suffolk County, Claiming Authority, Plaintiff, v. Paul WHITE, Criminal, Defendant, and Donna White, John Cline Reservoir, LLC., Paul White, Inc., Professional Real Estate Advisors, Professional Investment Advisors and 1031 Safe Qualified Intermediary Corp., Non–Criminal Defendant Nominees.
• Court: New York Supreme Court

997 N.Y.S.2d 101 (Table)

Thomas J. SPOTA, District Attorney of Suffolk County, Claiming Authority, Plaintiff

v. Paul WHITE, Criminal, DefendantandDonna White, John Cline Reservoir, LLC., Paul White, Inc., Professional Real Estate Advisors, Professional Investment Advisors and 1031 Safe Qualified Intermediary Corp., Non–Criminal Defendant Nominees.

No. 29681–12.

Supreme Court, Suffolk County, New York.

May 1, 2014.

Thomas J. Spota, District Attorney of Suffolk County, Hauppauge, pro se.

Raymond Negron, Esq. Reservoir, LLC, Mount Sinai, for Defendant, John Cline.

Paul White, Huntington, Defendant Pro Se.

DECISION AND ORDER AFTER HEARING

ELIZABETH H. EMERSON, J.

Thomas J. Spota, the District Attorney of Suffolk County (the “claiming authority”) commenced this civil forfeiture action pursuant to CPLR article 13–A against Paul White, a criminal defendant, and various other non-criminal defendants to recover $2.4 million as the proceeds, substituted proceeds, and instrumentalities of a crime or to recover a money judgment in that amount. On September 25, 2012, this court granted the claiming authority's ex-parte application for an order of attachment and authorized the levy of bank accounts in the names of the defendants Paul White; his wife, Donna White; Paul White Inc.; Professional Real Estate Advisors; 1031 Safe Qualified Intermediary Corp.; John Cline Reservoir, LLC; and Professional Investment Advisors, as well as real property located in Huntington, New York. The accounts in the name of Donna White and the real property were subsequently released by the claiming authority. Paul White was indicted on eight counts of grand larceny in the second degree pursuant to Penal Law § 155.40(1) and one count of scheme to defraud in the first degree pursuant to Penal Law § 190.65(1)(b), both of which are felonies.The claiming authority moved to confirm the ex-parte order of attachment, and the defendant Paul White cross moved to vacate, discharge, or modify the same; to dismiss this action in the interest of justice; and for attorney's fees and expenses. By an order of this court dated March 20, 2013, the motion and cross motion were referred to a hearing. The hearing was held on June 21, 2013; March 18, 2014; and April 8, 2014. The claiming authority's case consisted of the papers in support of the motion and in opposition to the cross motion and exhibits 1 through 4, which were admitted into evidence at the hearing. The claiming authority did not call any witnesses to testify. The opposition and Paul White's case consisted of the papers in opposition to the motion and in support of the cross motion; exhibits A through G, which were admitted into evidence at the hearing; and the testimony of Preston Treiber. At the conclusion of the hearing, the court reserved decision.

In order to invoke the provisional remedy of attachment under the asset-forfeiture statute, the claiming authority is required to demonstrate, inter alia, that it will prevail on the issue of forfeiture (CPLR 1312[3][a] ; Morgenthau v. Young, 204 A.D.2d 118). To prevail on the issue of forfeiture, the claiming authority must establish with an evidentiary showing that there is a substantial probability of a felony conviction for the forfeiture crimes (Kuriansky v. Bed–Stuy Health Care Corp., 135 A.D.2d 160, 175,affd 73 N.Y.2d 875;Spota v. Conti, 9 Misc.3d 349, 351). While Paul White has been indicted, the record presented fails to establish that there is a substantial probability that he will be convicted of either grand larceny in the second degree or scheme to defraud in the first degree.

A person is guilty of grand larceny in the second degree when he steals property the value of which exceeds $50,000 (Penal Law § 155.40[1] ). A person is guilty of scheme to defraud in the first degree when he engages in a scheme constituting a systematic, ongoing course of conduct with intent to defraud more than one person or to obtain property from more than one person by false or fraudulent pretenses, representations, or promises and so obtains property with a value in excess of $1,000 from one or more such persons (Penal Law § 190.65[1][b] ). The claiming authority's theory of the case is that the defendant Paul White, while acting as a financial advisor, unlawfully took approximately $2.4 million from eight investors by fraudulently misrepresenting to them that he was going to invest their money in an income-producing, low-risk investment.¹ Instead, he used their money to purchase a 400–acre parcel of vacant land in North Carolina, which the claiming authority characterizes as drought-stricken farmland, and paid himself unauthorized real-estate brokerage commissions in the amount of $290,000.

The investment was known as the John Cline Reservoir. There were a total of nine investors, each of whom formed a separate limited liability company (“LLC”).² Each LLC entered into a separate purchase agreement with the defendant John Cline Reservoir, LLC (the “seller”). John Cline Reservoir, LLC, is wholly owned by the defendant Paul White. It purchased the 400–acre parcel in North Carolina, and the investors purchased their interests in the property from the John Cline Reservoir, LLC. The investors held the property as tenants in common, and each investor executed a tenants-in-common agreement in addition to the purchase agreement. White planned to develop the property with a man-made reservoir, a marina, single-family homes, and retail shops, among other things.

The purchase agreement gave the seller, John Cline Reservoir, LLC, an option to repurchase the property for which the seller agreed to pay each investor 7% per annum and a 5% premium if it exercised the option. Both the purchase agreement and the tenants-in-common agreement allowed the investors to sell their interests in the property to each other or to third parties after first offering such interests to the other investors. Nothing in those agreements, however, required the seller, John Cline Reservoir, LLC, to buy back an investor's interest in the property. In 2011, one of the investors, the Little Shelter Animal Adoption Center, Inc. (“Little Shelter”), demanded the return of its investment from Paul White. When he refused, Little Shelter and seven other investors pursued criminal charges against White, and this action ensued.

According to the affidavit of Christine M. Lusak, Senior Investigative Auditor at the Suffolk County District Attorney's office, dated September 24, 2012, the John Cline Reservoir, LLC, received $2,625,011.52 from seven investors plus $350,00 from Little Shelter.³ John Cline Reservoir, LLC, used approximately $1.7 million to purchase the real property in North Carolina. Approximately $290,000 was used to pay real-estate brokerage commissions to the defendants Paul White, Inc., and Professional Real Estate Advisors, which were controlled by Paul and Donna White. Approximately $900,000 was deposited into accounts at TD Bank in the name of John Cline Reservoir, LLC, which were controlled by Paul White. Approximately $500,000 of the $900,000 was paid back to the investors for the option to repurchase their interests in the property as set forth in the purchase agreement.⁴ It is the funds currently on deposit in those accounts, a little less than $200,000, that are the subject of this action.The claiming authority has advanced several arguments in support of its motion to confirm the order of attachment that are inconsistent with the documentary evidence. For example, the claiming authority contends that Paul White misrepresented to the investors that they were purchasing a safe, liquid investment. However, the purchase agreements and tenant-in-common agreements that the investors signed clearly indicated that they were purchasing an interest in real property, and each investor formed an LLC, which is the hallmark of an investment in real estate and is used to limit personal liability. There would be no need to limit personal liability if the investment did not have any risk associated with it. Furthermore, the investors represented and warranted in the purchase agreements, inter alia, that they were purchasing the property for investment purposes and had no present intention of reselling it; that they understood real estate is not readily marketable; that they were sophisticated investors with ample experience in owning real estate; that they were willing to accept the economic risk of losing their entire investment; that they were basing their decisions to invest on their own inspections of the property and analyses; and that they were not relying on any representations or other information furnished by the seller. A party who signs a document without a valid excuse for having failed to read it is presumed to have knowledge of its contents and is conclusively bound by its terms (see, Avanta Bus. Servs. Corp. v. Colon, 4 Misc.3d 117, 119 ; see also, Daniel Gale Assocs. v. Hillcrest Estates, 283 A.D.2d 386, 387;Sofio v. Hughes, 162 A.D.2d 518, 519). The claiming authority contends that Paul White paid himself unauthorized brokerage commissions in the amount of $290,000, which represents approximately 10% of the purchase price paid by the eight investors who are the complaining witness in the criminal action. The purchase agreement provides, in pertinent part, as follows regarding commissions:

The parties mutually warrant and covenant that, other than commissions and other funds to be held on Buyer's behalf to entitle and improve property described in the documents, to be paid by Seller in accordance with this agreement, no other fees shall be due or payable on account of this transaction (emphasis added).

The court finds the aforementioned language to be somewhat garbled as to what it is intended to mean. Contrary to the claiming authority's contention, it does not expressly prohibit the payment of commissions and could be interpreted to authorize such payments.The claiming authority contends that ...