The opinion of the court was delivered by: SPATT
This lawsuit arises from the claims of the plaintiff, Robert Zigman (the "plaintiff" or "Zigman"), that the defendants have been "systematically looting" certain corporations in which he and several of the defendants maintain interests. According to Zigman, the defendants have deprived him of over $ 1.8 million in profits "principally by . . . laundering vast amounts of income" through unrelated business entities. The plaintiff alleges that the defendants unlawful conduct violates the Racketeering Influenced Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961-68 and New York Business Corporation Law §§ 626, 706(d), 716(c), 720, 1104 and 1202, and gives rise to common law claims for fraud, breach of contract, breach of fiduciary and other unidentified duties, and warrants imposition of a constructive trust.
The following facts are taken from the Complaint. The plaintiff, Robert Zigman is a resident of East Rockaway, New York and from July 1988 until May 1989 was married to the defendant Alyssa Dawn Giacobbe ("Alyssa"). The defendant Michael Giacobbe ("Michael") resides in Woodbury, New York and has been married to Alyssa since September 1993. The defendant Demetrio Giacobbe ("Demetrio") is a resident of Plainview, New York and is Michael's brother (collectively the "Giacobbes"). The defendant Emil H. Schaefer ("Schaefer") is a resident of Sands Point, New York and owns "Bay Bootery," a business located in Port Washington, New York. The defendant Bobbie Gingold ("Gingold") resides in Great Neck, New York and is Alyssa's mother.
In April 1992 Alyssa introduced Zigman to Michael for the purposes of opening and operating an auto body and repair shop in Valley Stream, New York. According to the Complaint, in June 1992 the plaintiff entered into a partnership (the "Body Shop Partnership") with Michael and Michael's brother Demetrio. According to the terms of the partnership agreement Zigman would invest $ 15,000 in cash and $ 17,000 in equipment in the business and was entitled to 35 percent of the profits. Michael was entitled to 35 percent of the profits and Demetrio was to receive the remaining 30 percent. In support of this allegation Zigman attaches to the Complaint a handwritten, unsigned, and undated page from what appears to be a calendar which states each partner's interest. Alyssa was to act as the partnership's bookkeeper and "de facto" treasurer.
On June 26, 1992, the parties incorporated Finish Line Collision, Inc. "Finish Line 1," the nominal owner of a body shop located in Valley Stream, New York. On June 21, 1993, the parties incorporated Finish Line Too, Inc. as the nominal owner of a body shop located in Garden City Park, New York. Apparently, both of these body shops do business under the name "Finish Line Collision."
According to the plaintiff, since 1992, the Giacobbes "took control of all of the corporate bookkeeping and accounting for Finish Line 1, and later Finish Line Too," and advised him that all income was necessary to meet expenses, thereby leaving no profit. In reality however, states Zigman, the Giacobbe defendants "concealed from the plaintiff the true amount of gross income and profits being earned by both body shops and, therefore, the Body Shop Partnership. Instead, [they] diverted income from the business bank accounts and aggregated to themselves substantial sums. . . instead of sharing the profits [as previously] agreed to."
Zigman alleges that the Giacobbes would negotiate checks constituting claims payments from insurance companies or personal checks from customers through the bank accounts of third parties such as Bay Bootery, owned by defendant Schaefer. The customers' checks would be endorsed to a bank for Bay Bootery's account. Schaefer would then withdraw the money as cash, disburse it to Michael and Alyssa with a fee deducted to pay for Schaefer's assistance. As evidence of these transactions, Zigman alleges that between June 1992 and October 1995, and continuing thereafter, monthly bank statements reflect credits to Bay Bootery's account representing checks for "substantial sums" which were otherwise payable to the Body Shop Partnership. Further, on March 14, 1995, Michael and Alyssa caused a company referred to only as Traina Enterprise, Inc. to mail a check in the amount of $ 1,080, apparently for some type of automotive repair "to Michael Giacobbe to Finish Line Too." The check was then deposited in a Bay Bootery account. Similar schemes were used with the businesses' vendors including companies referred to as "American Auto Body Supplies" and "Albert Kemperle Auto Body Supplies, Inc.," although no specific examples with respect to these third parties are alleged.
In addition, Michael and Alyssa have used the bank account of Alyssa's mother, Bobbie Gingold to conceal income from the plaintiff. For example, according to Zigman, on January 24, 1996, Alyssa transferred an amount in excess of $ 20,000 to Gingold's bank account in order to conceal the money. Then on January 30, 1995, "Gingold caused a check to be issued by Aetna for repairs to a Lincoln automobile and thereafter caused said check for over $ 7,000 to be negotiated in a manner that the Body Shop Partnership and Finish Line did not receive the funds."
Similarly, according to the Complaint, Demetrio would have customers make checks out to him personally so that the money could be diverted from the Body Shop Partnership. For example, on December 3, 1993, Demetrio requested that a customer, referred to as Kathleen Kerr, pay a repair bill in the sum of $ 8,973.28 by a check payable to him personally. The check was then deposited in Demetrio's personal account in National Westminster Bank ("NatWest"). On April 15, 1994 Demetrio requested that a second customer referred to only as "Shane" pay for automotive services by a check for $ 1,000 payable to cash. This check was also deposited directly into Demetrio's Natwest account. On September 23, 1994, Demetrio had a third customer referred to as Beatrice Levine pay for services with a check made out to cash which was never deposited into a Finish Line Collision account.
Examples of Michael's alleged unlawful conduct include similar diversions. According to the Complaint, Michael maintained an "unusually close relationship with supervising adjusters at Federal Insurance Company." This relationship allowed him to obtain payment checks directly which he then negotiated to third parties "outside of the business accounts." According to Zigman, in September 1993, Michael and Alyssa processed a "flood damage claim" with Federal using false invoices of Graham Restoration Company. On May 11, 1994, Michael and Alyssa caused Federal Insurance Company to mail a check to Finish Line Collision jointly with Ford Motor Company. In July 1995 Michael caused an agent of Federal to mail an "approved estimate" authorizing the payment of over $ 27,000 in repairs to a "late model Mercedes" at Finish Line Too. On July 10, 1995 Federal issued a check in the amount of $ 27,796.37 for repairs to the Mercedes. The check however, was payable to a company identified only as Bristol Manor.
Although Zigman admits that he has been unable to obtain all of the financial records from Finish Line 1 and Finish Line Too, given the records he does have, he estimates that the profits unreported to him amount to over $ 1.8 million. According to the plaintiff this "wide scale embezzlement" permitted Michael and Alyssa to purchase a "large" home in Woodbury, a second home in Port Washington and lease "expensive" cars. Further, Zigman alleges that a third body shop, "Finish Line 3" was incorporated by the Giacobbe's on October 31, 1995. Although the plaintiff alleges that he has no involvement with this third shop, he contends that it was established with the proceeds from the first two locations.
In addition to these concealments, the plaintiff alleges that the defendants also made several unlawful misrepresentations to him in violation of their fiduciary obligations as "de facto" officers, agents and co-owners of closely held corporations, including their duty to disclose all relevant financial information and their duty of loyalty. These alleged misrepresentations include the following:
1. During the period from June 1992 throughout 1994, Alyssa continually misrepresented that the business was not making any profit.
2. In June 1993, Michael, in the presence of Demetrio, advised Zigman that Finish Line 1 was in such financial distress that the business would "have to be closed down."
3. In October 1993, Alyssa advised the plaintiff that Finish Line Too would have to "produce more income to be able to survive."
4. In March 1994 Alyssa informed Zigman that Finish Line Too was "paying . . . the bills for Finish Line 1."
5. Also in March 1994 Michael and Alyssa represented that the business was in such distress that the plaintiff would have to use his own automobile for business purposes.
6. In January or February 1995, Alyssa stated that she had never misrepresented the companies' finances despite the evidence to the contrary.
7. In April 1995 Michael, while considering a site for a third shop with the plaintiff, stated that there was no money available from the other shops to open a third shop and that he and the plaintiff would have to lay out the money themselves.
According to the plaintiff, these "misrepresentations" were made by the Giacobbes "for the purpose of misleading Plaintiff and unlawfully enriching themselves."
Based on these contentions, the plaintiff alleges multiple causes of action for violations of RICO, 18 U.S.C. §§ 1961-68, New York Business Corporations Law §§ 626, 706(d), 716(c), 720, 1104-a, 1202, and common law claims for fraud, breach of contract, breach of fiduciary and "other" unidentified duties, and seeks imposition of a constructive trust. Zigman seeks, compensatory damages, punitive damages, treble damages, costs, attorneys' fees and equitable relief including an accounting, removal of the defendants as directors and officers of the Finish Line corporations and an injunction prohibiting their re-election or re-appointment, dissolution of the Finish Line corporations, and imposition of a constructive trust.
The defendants have filed a single motion to dismiss pursuant to Fed. R. Civ. P. 9(b) and 12(b)(6) for failure to plead fraud with the required particularity and for failure to state a claim upon which relief can be granted. The plaintiff opposes the motion, arguing that his claims are adequately pled. In the alternative, the plaintiff moves for leave to replead pursuant to Fed. R. Civ. P. 15(a) in the event that the defendants' motion is granted.
On a motion to dismiss for failure to state a claim, "the court should not dismiss the complaint pursuant to Rule 12(b)(6) unless it appears 'beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief'". Goldman v. Belden, 754 F.2d 1059, 1065 (2d Cir. 1985), quoting, Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); see also IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1052-53 (2d Cir. 1993). The Second Circuit stated that in deciding a Rule 12(b)(6) motion a Court may consider "only the facts alleged in the pleadings, documents attached as exhibits or incorporated by reference in the pleadings and matters of which judicial notice may be taken". Samuels v. Air Transport Local 504, 992 F.2d 12, 15 (2d Cir. 1993); see also Rent Stabilization Ass'n of the City of New York v. Dinkins, 5 F.3d 591, 593-94 (2d Cir. 1993), citing Samuels, 992 F.2d at 15.
It is not the Court's function to weigh the evidence that might be presented at a trial, the Court must merely determine whether the complaint itself is legally sufficient, see Goldman, 754 F.2d at 1067, and in doing so, it is well settled that the court must accept the allegations of the complaint as true, see LaBounty v. Adler, 933 F.2d 121, 123 (2d Cir. 1991); Procter & Gamble Co. v. Big Apple Indus. Bldgs, Inc., 879 F.2d 10, 14 (2d Cir. 1989), cert. denied, 493 U.S. 1022, 107 L. Ed. 2d 743, 110 S. Ct. 723 (1990), and construe all reasonable inferences in favor of the plaintiff. See Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, ...