Szulik v. Tag Virgin Islands, Inc.

Decision Date12 March 2012
Docket NumberNo. 5:10–CV–585–D.,5:10–CV–585–D.
Citation858 F.Supp.2d 532
CourtU.S. District Court — Eastern District of North Carolina
PartiesMatthew J. SZULIK, individually and as trustee of the Kaitlin Szulik Trust, the Brendan Szulik Trust, and the Keenan Szulik Trust, Kyle M. Szulik, and Raymond W. Szulik, Plaintiffs, v. TAG VIRGIN ISLANDS, INC. (formerly Taurus Advisory Group, LLC), James S. Tagliaferri, Patricia Cornell, and Barry B. Feiner, Defendants.

OPINION TEXT STARTS HERE

Pressly M. Millen, Robert T. Numbers, II, Womble, Carlyle, Sandridge & Rice, PLLC, Raleigh, NC, Daniel I. Small, Gordon P. Katz, Michael J. Stromsnes, Boston, MA, John L. Brownlee, McLean, VA, Tracy A. Nichols, Miami, FL, for Plaintiffs.

Paul K. Sun, Jr., Ellis & Winters, E. Hardy Lewis, Blanchard, Miller, Lewis & Isley, P.A. Raleigh, NC, John J. Phelan, III, John J. Phelan, III, P.C., New York, NY, for Defendants.

ORDER

JAMES C. DEVER III, Chief Judge.

On December 23, 2010, Matthew Szulik filed a complaint on behalf of himself and his family (collectively, “Szuliks” or plaintiffs) against TAG Virgin Islands, Inc. (TAG), James S. Tagliaferri (Tagliaferri), and Patricia Cornell (Cornell) (collectively, “TAG defendants). Compl. [D.E. 1]. The complaint also alleged claims against Barry B. Feiner (Feiner). Id. On March 4, 2011, the TAG defendants moved to dismiss for lack of jurisdiction, improper venue, and failure to state a claim for which relief can be granted [D.E. 20], and filed a supporting memorandum [D.E. 21]. On March 30, 2011, Feiner filed his own motion to dismiss, asserting lack of personal jurisdiction, improper venue, and failure to state a claim for which relief can be granted [D.E. 26]. Feiner also submitted a supporting memorandum [D.E. 28]. Both motions to dismiss also contained motions to strike [D.E. 20, 26]. On April 14, 2011, the Szuliks requested leave to conduct jurisdictional discovery [D.E. 30]. On April 15, 2011, the court referred that motion to Magistrate Judge Webb [D.E. 31], who denied it on May 2, 2011, 783 F.Supp.2d 792 (E.D.N.C.2011) [D.E. 38]. Thereafter, on August 3, 2011, the Szuliks filed memoranda opposing the motions to dismiss and the motions to strike [D.E. 47–48]. On August 22, 2011, both the TAG defendants and Feiner replied [D.E. 50–51]. On January 12, 2012, the court ordered the parties to submit supplemental filings regarding two specific issues [D.E. 52]. The parties filed their supplemental memoranda on January 19, 2012 [D.E. 53–55]. The next day, Feiner moved to strike portions of the Szuliks' supplemental brief [D.E. 56]. On January 23, 2012, the TAG defendants moved to join Feiner's motion to strike [D.E. 57]. On February 10, 2012, the Szuliks filed a memorandum in opposition to the motion to strike. Pls.' Mem. Opp'n Second Mot. Strike [D.E. 58]. In that memorandum, the Szuliks asked the court to transfer all claims against all defendants to the Southern District of New York. Id. 3–5. On February 13, 2012, Feiner requested leave to file a memorandum opposing transfer to the Southern District of New York [D.E. 59]. On February 22, 2012, the Szuliks sought leave to file a reply to Feiner's memorandum [D.E. 60]. As explained below, the court grants the Szuliks' request to transfer this case to the Southern District of New York.

I.

After first meeting approximately twenty-five years ago, Matthew Szulik and Tagliaferri became close friends. Compl. ¶¶ 18–19. Matthew Szulik and his family also became close friends with Cornell. Id. ¶ 20. Because of these personal relationships, the Szuliks regarded Tagliaferri and Cornell as trusted advisors. Id. ¶ 21. Indeed, the friendships fostered a professional relationship. On March 25, 1996, the Szuliks entered into an Investment Management Agreement (“IMA”) with TAG, the company of which Tagliaferri and Cornell were managing directors. Id. ¶ 22; see also Compl., Ex. A (“IMA”). The agreement provided that TAG would “manage the investment of all cash, securities, and other assets comprising the investment portfolio placed under” the company's supervision. IMA ¶ 1. The agreement authorized TAG “without further approval by, or notice to, the [Szuliks], to make all investment decisions concerning the [p]ortfolio and to make purchases, sales, and otherwise effect transactions in stocks, bond[s], and other securities in the [p]ortfolio on behalf of the” Szuliks. Id. So that TAG could “render efficient services,” the IMA required the Szuliks to “notify [TAG] of any and all changes in [their] ... investment objectives....” Id. For TAG's services, the Szuliks paid an annual fee of one percent of the assets under management. Compl. ¶ 23.

TAG representatives first signed the IMA at TAG's Connecticut office. See Pls.' Mem. Opp'n [D.E. 48], Ex. A (“Szulik Aff.”) ¶ 7. TAG then mailed the signed IMA to the Szuliks' Raleigh, North Carolina residence, where the Szuliks signed the IMA. Id. ¶¶ 4–7. Only TAG and the Szuliks were party to the IMA. See IMA page 4. Cornell signed the agreement, but only in her representative capacity as one of TAG's managing directors. See id. Connecticut law governs the IMA. Id. ¶ 10.

When signing the IMA, the Szuliks' primary investment objective “was preservation of capital and conservative growth to be achieved primarily through investment in blue-chip stocks and bonds.” Compl. ¶ 25. The Szuliks communicated this objective to Tagliaferri and Cornell. Id.

During the life of the IMA, the Szuliks had numerous meetings with Tagliaferri and Cornell. Szulik Aff. ¶ 8. At these meetings, the Szuliks discussed the management of their assets and investments. Id. Although Matthew Szulik and Tagliaferri occasionally met in New York or Connecticut, most of the meetings between the Szuliks and the TAG defendants occurred at the Szuliks' Raleigh, North Carolina home. Id. The Szuliks also communicated with Tagliaferri and Cornell in other ways. For example, Matthew Szulik “exchanged hundreds of emails with Tagliaferri,” many of which Matthew Szulik sent from or received in Raleigh, North Carolina. Id. ¶ 9. Matthew Szulik also communicated with Tagliaferri and Cornell by telephone from Raleigh, North Carolina, and Tagliaferri and Cornell sent written correspondence to the Szuliks' Raleigh, North Carolina home. Id.

After operating under the IMA for approximately ten years, relations between the Szuliks and the TAG defendants soured. After mid–2006 and without notice to the Szuliks, TAG liquidated some of the Szuliks' “more conservative investments” and reinvested the proceeds “in suspect, high-risk, illiquid securities, as well as real estate and personal loan instruments....” Compl. ¶ 29. The allegedly inappropriate investments include (1) securities issued by Conversion Services International, Inc. (“Conversion Services”); (2) a loan to Scott Newman, then-CEO of Conversion Services, secured by allegedly worthless Conversion Services equities; (3) corporate bonds, equities, and other assets of International Equine Acquisitions Holdings, Inc. (“IEAH”); (4) a note from Paseo de la Reforma Partners, LLC, secured by a deed of trust on property in Mexico City, Mexico; (5) Protein Polymer Technologies, Inc. (“PPTI”) securities; (6) a personal loan to Andrew Cohen; (7) a loan to Peter Neary (“Neary”) 1 secured by a mortgage on residential property in Miami Beach, Florida; (8) a personal loan to Marvin Ceder; and, (9) a loan to 1920 Bel Air, LLC (1920 Bel Air”), secured by a deed of trust on residential property in Los Angeles, California. See id. ¶¶ 32–53. The Szuliks allege that, in exchange for investing in IEAH securities, the TAG defendants took $1,630,000 in illegal kickbacks. Id. ¶¶ 37–38, 54–62.

The Szuliks allege that Feiner, an attorney licensed to practice law in New York, was involved in some of the improper investments and in the kickback scheme. Specifically, Feiner purportedly represented all parties when facilitating an extension of a loan that TAG made to PPTI using the Szuliks' money. Id. ¶¶ 44, 72–73. Feiner also purportedly represented the Szuliks with respect to a stock purchase from Conversion Services, drafted the mortgage documents used in the Neary loan, and “was substituted as trustee with respect to [the] deed of trust” used to secure the 1920 Bel Air investment. Id. ¶¶ 47, 74, 76–77. Finally, Feiner drafted the convertible note agreements and performed other services that allowed the TAG defendants to take kickbacks from IEAH. Id. ¶ 75. The Szuliks, however, have never met with or spoken to Feiner, or engaged him as legal counsel. See id. ¶¶ 72–74, 77; Szulik Aff. ¶¶ 12–13.

Beginning in 2008, Matthew Szulik became “concerned with the ... composition of [his family's] portfolio....” Compl. ¶ 79. Because occasional statements that he received from Tagliaferri were “incomplete and unintelligible,” Matthew Szulik began calling Tagliaferri. Id. Often, Tagliaferri did not answer or return Matthew Szulik's calls. Id. In September 2008, the Szuliks hired a new investment advisor and instructed the TAG defendants to refrain from making new investments without the Szuliks' express consent and to liquidate some existing investments. Id. ¶ 81. After investigation, the Szuliks' new investment advisor concluded that “many of the companies invested in were far too risky [and] illiquid, and the investments did not take into account the Szuliks' short- and long-term needs.” Id. ¶ 82. In April 2009, the Szuliks met with Tagliaferri and Cornell at the Szuliks' home. Id. ¶ 84. At that meeting, the Szuliks expressed their concerns about how TAG had invested their funds. Id. “The TAG Defendants offered no explanation [for their conduct] and subsequently failed to return phone calls or provide requested information.” Id. In July 2009, the Szuliks terminated the IMA. Id. ¶ 85. In February 2010, the Szuliks received copies of invoices from one of the TAG defendants' former attorneys. Id. ¶ 89. Those invoices showed kickbacks TAG had received from IEAH. Id.

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