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USA CERTIFIED MERCHANTS, LLC v. KOEBEL

May 14, 2003

USA CERTIFIED MERCHANTS, LLC, JERRY MOSSBERG AND K.W. LIU PLAINTIFFS,
v.
STEVE KOEBEL, KEITH COLEMAN AND KENTUCKY DERBY HOSIERY CO., INC., DEFENDANTS.



The opinion of the court was delivered by: VICTOR Marrero, District Judge.

DECISION AND ORDER

USA Certified Merchants, LLC ("USA Certified"), Jerry Mossberg ("Mossberg") and K.W. Liu ("Liu") (collectively "Plaintiffs") brought this action asserting claims for violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962 et seq., breach of fiduciary duty, breach of contract, fraud and unjust enrichment. Defendant Kentucky Derby Hosiery, Inc. ("KDH") moves for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure dismissing all the claims against it. By separate motion, Defendant Steve Koebel ("Koebel"), pro se, moves for summary judgment dismissing the entirety of the claims alleged against him. Plaintiffs cross-move for partial summary judgment on the discrete legal issue of KDH's vicarious liability for the actions of defendant Keith Coleman ("Coleman").*fn1 For the reasons set forth below, KDH's motion is GRANTED in its entirety, Koebel's motion is DENIED in part and GRANTED in part and Plaintiffs' motion is DENIED.

I. BACKGROUND*fn2

A. PARTIES

USA Certified is a New York limited liability corporation founded by plaintiffs Mossberg and Liu and defendant Koebel in June of 1998. Mossberg, Liu and Koebel were each one-third shareholders of USA Certified. USA Certified was engaged in the wholesale close-out business involving garments and related apparel. From June 1998 until he resigned on August 17, 2000, Koebel acted as the President of USA Certified, taking a monthly draw from USA Certified funds as salary, beginning at $6,000 per month and gradually increasing to $14,000 per month. Mossberg and Liu were not as actively involved in the daily operations of USA Certified as Koebel, although the level of Mossberg's and Liu's involvement in the business of USA Certified is disputed.

KDH is a Kentucky corporation engaged in the business of manufacturing and selling hosiery throughout the United States and in parts of Canada. Defendant Coleman was employed by KDH from May 1, 1995 through November 2000 as President of the KDH Duckhead Division, a sales-marketing team designed primarily to sell KDH's licensed brand of Duckhead products. Despite his title as President, KDH indicates that Coleman was never an officer or director of the company.

As President of KDH's Duckhead division, Coleman was authorized to hire independent sales representatives on behalf of KDH to assist in securing sales of Duckhead products. KDH paid independent sales representatives commissions for their services. Coleman hired Koebel to act as an independent sales representative for KDH. From approximately April 1998 — prior to the founding of USA Certified in June of 1998 — through November 2000, Koebel worked as an independent sales representative for the Duckhead division and received approximately $160,000 in commission payments.

B. FRAUDULENT SCHEME

Plaintiffs allege that Koebel, Coleman and KDH (collectively, "Defendants") engaged in a covert fraudulent scheme to exploit USA Certified's resources by utilizing Plaintiffs' accounts, business contacts and assets to promote KDH products for their own benefit. Furthermore, Plaintiffs allege that Koebel, in implementing this scheme, neglected his business responsibilities for USA Certified by spending his time, in conjunction with Coleman, selling KDH products to the detriment of USA Certified's business.

Koebel had been employed by Coleman as an independent sales representative prior to starting USA Certified with Mossberg and Liu. A few weeks after USA Certified was founded, Mossberg and Koebel had some discussions concerning Coleman and the use of USA Certified's facilities in exchange for rent or commissions. (See Mossberg Dep. 152-153, Exh. E of KDH's exhibit binder.) Although KDH and Koebel attest that Mossberg also knew that Koebel was employed as a sales agent at KDH, Plaintiffs argue that they were unaware of any such arrangement.

Plaintiffs also allege that in around September or October 1998, upon realizing that USA Certified was not receiving revenue from KDH for KDH's use of their facilities, Mossberg instructed Koebel to desist from allowing Coleman to use USA Certified facilities and to remove all KDH samples from the premises of USA Certified. Mossberg asserts that Koebel represented to him that he would act in accordance with his instructions. Nevertheless, Plaintiffs allege that Koebel, utilizing USA Certified's facilities and resources, continued to act on behalf of KDH, without their knowledge.

Kelly Cook ("Cook") was hired by Koebel to be the sales manager for USA Certified at about the time of the inception of USA Certified. Cook resigned from USA Certified on or about August 17, 2000. Cook testified at her deposition that she believed that, to some extent, the money received by Koebel from USA Certified was to be booked as USA Certified revenue and that she was led to believe that USA Certified acted as the exclusive sales agent for KDH Duckhead products. She also believed that her compensation would in some way be benefitted from Koebel's work on behalf of KDH, as well as her own limited activity on behalf of KDH.

Koebel argues that Plaintiffs knew that he worked as a sales agent for KDH and that it was understood that his activities on behalf of KDH were separate and apart from his business activities on behalf of USA Certified. Moreover, Koebel argues that Plaintiffs knew and accepted that commissions from his work for KDH would be paid to Koebel alone. Coleman attests that he was uninformed and unaware as to what was done with the money Koebel made from KDH, but that he had met with Mossberg during June of 1998 and during that conversation Coleman told Mossberg about the relationship between KDH and Koebel. Coleman explains that he left any resolution of the arrangement concerning Koebel's commissions from KDH to the shareholders of USA Certified.

Based on the scheme outlined above, and the various fraudulent statements and misrepresentations alleged to have been committed by Koebel, and support for such acts provided by Coleman and KDH, Plaintiffs brought claims for fraud, violations of RICO, unjust enrichment and breach of contract against Koebel, claims for RICO violations and unjust enrichment against KDH and claims for RICO violations against Coleman. KDH and Koebel move for summary judgment on all the claims against them. Coleman made no motion nor did he join in those filed by the other Defendants. Plaintiffs argue that KDH is vicariously liable for the actions of its agent, Coleman, in connection with the RICO violations alleged against it and cross-move for summary judgment as a matter of law on that discreet issue.

II. DISCUSSION

A. STANDARD OF REVIEW

A motion for summary judgment should be granted where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c); see Rodriguez v. Hahn, 209 F. Supp.2d 344, 346 (S.D.N.Y. 2002) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). The role of the Court is not to resolve issues of fact but, rather, "to determine as a threshold matter whether there are genuine unresolved issues of material fact to be tried." Gibson v. Am. Broad. Companies, Inc., 892 F.2d 1128, 1132 (2d Cir. 1989). The moving party bears the initial burden of "informing the district court of the basis for its motion" and identifying the matter that "it believes demonstrate[s] the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323, 106 S.Ct. 2548. The nonmoving party "must support with specific evidence his assertion that a genuine dispute as to material fact does exist," id. at 324, 106 S.Ct. 2548, and "may not rely on conclusory allegations or unsubstantiated speculation." Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir. 1998).

The opposing party's showing of a genuine dispute must be grounded in concrete evidence sufficient to support a reasonable jury's rendering a verdict in his favor. See Anderson v. Liberty Lobby, 477 U.S. 242, 248, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). ("The mere existence of a scintilla of evidence in support of the [non-movant's] position will be insufficient."); Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). All ambiguities and reasonable inferences drawn from the underlying facts must be resolved in the light most favorable to the party opposing the motion. See U.S. v. One Tintoretto Painting Entitled "The Holy Family With St. Catherine and Honored Donor", 691 F.2d 603, 606 (2d Cir. 1982) (citing United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962)).

The Court is "mindful that summary judgment is ordinarily inappropriate where an individual's intent and state of mind are implicated. . . . The summary judgment rule would be rendered sterile, however, if the mere incantation of intent or state of mind would operate as a talisman to defeat an otherwise valid motion." Meiri v. Dacon, 759 F.2d 989, 998 (2d Cir. 1985); accord Distasio v. Perkin Elmer Corp., 157 F.3d 55, 62 (2d Cir. 1998).

Furthermore, where the non-moving party will bear the burden of persuasion at trial, the moving party is entitled to summary judgment either where the evidence negates an essential element of the nonmovant's claims or where there is no evidence that would permit the non-movant to establish an essential element of his or her claim. See Farid v. Smith, 850 F.2d 917, 924 (2d Cir. 1988).

B. KDH'S LIABILITY FOR COLEMAN'S ACTIONS

The allegations and evidence concerning KDH's liability in the RICO violations alleged are based on Coleman's participation in a scheme with Koebel to defraud USA Certified. Accordingly, as is undisputed by the parties, central to the analysis of KDH's potential liability for the RICO charges alleged by Plaintiffs is whether, on the evidence in the record, KDH can be held liable for Coleman's actions.

It is well settled that "the aim of RICO is to protect organizations from criminal infiltration, not to make them responsible parties." Volmar Distributors, Inc. v. New York Post Co., Inc., 899 F. Supp. 1187, 1192 (S.D.N.Y. 1995); accord Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 164, 121 S.Ct. 2087, 150 L.Ed.2d 198 (2001); Laro, Inc. v. Chase Manhattan Bank, 866 F. Supp. 132, 139 (S.D.N.Y. 1994); see also, Rush v. Oppenheimer & Co. Inc., 628 F. Supp. 1188, 1194-1195 (S.D.N.Y. 1985) ("Superimposing vicarious liability doctrines on the RICO criminality requirements would in this context permit the `enterprise' which is the conduit for these activities, to ...


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