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Rothberg v. Chloe Foods Corp.

July 24, 2007


The opinion of the court was delivered by: Sifton, Senior Judge


Plaintiff Sherrill Bonder Rothberg commenced this action in October 2006 against corporate defendants Chloe Foods Corporation, a/k/a Chloe Foods Manufacturing; Chloe Foods, Inc., d/b/a Blue Ridge Farms, Inc.; Chloe Foods S.A.; BRF Acquisition, LLC; 3301 Atlantic Avenue, LLC; Greenvale Financial Center, Inc.; Anperg, Inc.; and Blue Ridge Farms (Illinois), Inc. (the "Chloe Defendants"); and against individual defendants Thomas Kontogiannis; Annette Apergis; Nick Tisinenkias; Jeffrey Siegel; Richard Siegal; and June Siegal both individually and in her capacity as personal representative of the estate of Seymour Siegel (the "Individual Defendants").*fn1

According to plaintiff, defendants have defrauded her in order to avoid payment of a debt owed by Blue Ridge Farms, Inc. ("Blue Ridge Farms") and of a judgment*fn2 subsequently obtained pursuant to that debt. Specifically, plaintiff claims that (1) Kontogiannis, Apergis, Jeffrey Siegel, and Richard Siegel (the "RICO defendants") fraudulently transferred the assets of Blue Ridge Farms through a pattern of racketeering activity in order to avoid their obligation to plaintiff and other creditors, in violation of RICO, 18 U.S.C. § 1962 et seq.;*fn3 (2) the Chloe Defendants became successors to Blue Ridge Farms and are liable for its debts;*fn4 (3) all defendants fraudulently transferred assets in violation of New York Debtor and Creditor Law §§ 273, 274, 275 and 276; (4) all defendants breached their contractual obligations to plaintiff; (5) the Individual Defendants breached their fiduciary duties to plaintiff; and (6) all defendants unjustly enriched themselves at the expense of plaintiff.*fn5 Now before this Court are (1) the non-RICO defendants' motion to dismiss for lack of subject matter jurisdiction, pursuant to Fed. R. Civ. P. 12(b)(1); (2) all defendants' motion to dismiss for failure to state a claim, pursuant to Fed. R. Civ. P. 12(b)(6); and (3) plaintiff's motion for partial summary judgment, pursuant to Fed. R. Civ. P. 56.*fn6 For the reasons stated below, defendants' motions to dismiss are denied and plaintiff's motion for partial summary judgment is also denied.


The following facts are taken from plaintiff's Amended Complaint (the "Complaint"),*fn7 the submissions of the parties in connection with these motions, and oral arguments held before the undersigned.*fn8 Disputes are noted.

Blue Ridge Farms

Blue Ridge Farms, which sold prepared food products to supermarkets and other retail outlets, was founded in 1960 by Seymour Siegel. Prior to March 2004, Blue Ridge Farms was a family business, controlled by the Seymour Siegel, his wife June Siegel, and their sons Jeffrey and Richard Siegel; Seymour served as Chief Executive Officer ("CEO"), June was Corporate Secretary and Treasurer, Jeffery was President and Chief Financial Officer ("CFO"), and Richard was Chief Operating Officer ("COO"). The company's main operations were conducted at a manufacturing facility located at 3301 Atlantic Avenue in Brooklyn, New York. An affiliated entity owned entirely by Jeffery and Richard Siegel and known as Blue Ridge Farms (Illinois) owned a processing and warehouse facility in Park Forest, Illinois. Blue Ridge Farms also maintained sales and distribution facilities in Florida*fn9 and there were other affiliated entities, not specified in the Complaint, also owned by the Siegel family.*fn10

Plaintiff's Loans

Plaintiff is a friend of the Siegel family and loaned money on multiple occasions to Blue Ridge Farms, beginning in 1991. In January 2004, June Siegel asked plaintiff to make an additional loan and plaintiff loaned the company an additional $30,000, bringing the total outstanding loans made by plaintiff to $830,000.*fn11

That same month, Blue Ridge Farms allegedly defaulted on interest payments due to plaintiff. On March 9, 2004, Seymour Siegel, on behalf of Blue Ridge Farms, executed a promissory note in favor of plaintiff in the principal amount of $830,000, which replaced all prior notes. This note was payable "on demand."*fn12

On June 30, 2004, Blue Ridge Farms repaid the $30,000 loan of that year but still had an outstanding debt to plaintiff of $800,000 plus accrued interest. On July 15, 2004, Blue Ridge Farms paid plaintiff $4,166.68 for interest due on the loan, though, according to plaintiff, that amount did not cure the outstanding interest due. On August 18, 2004, plaintiff advised Blue Ridge Farms that it was in default of the loans and demanded immediate repayment of all amounts due.*fn13

Blue Ridge Farms did not make any subsequent payments to plaintiff and on September 14, 2004, plaintiff commenced suit against Blue Ridge Farms in this district to recover the outstanding amounts due. According to plaintiff, Blue Ridge Farms eventually conceded that it owed plaintiff the money but also produced a new and fraudulent promissory note with a maturity date of December 31, 2005 (the "New Note"), at which point Blue Ridge Farms alleged that plaintiff was not entitled to be repaid until that date.*fn14 A copy of that fraudulent note was provided to the district court at an unknown date during the litigation*fn15 and was sent by fax to plaintiff on December 13, 2004.

According to plaintiff, Blue Ridge Farms then engaged in a series of stalling tactics, such as requests for extensions of discovery deadlines and adjournments until July 2005, at which point Blue Ridge Farms informed the district court that it no longer wished to defend itself in the action. After further delays caused by Blue Ridge Farms failure to cooperate, the court entered a Final Judgment of Default in favor of plaintiff in the amount of $915,833.32 on August 31, 2005. According to plaintiff, she is now unable to collect on that judgment because of the "scheme" described below which allowed the Chloe Defendants to foreclose on the assets of Blue Ridge Farms in January 2007 and lock out the legitimate creditors such as the plaintiff. As a result, plaintiff's loan to Blue Ridge Farms and the subsequent judgment are now "valueless and uncollectible."

2004 Stock Sale to Kontogiannis

In February 2004, Jeffrey and Richard Siegel met with Thomas Kontogiannis to pursue a possible sale-leaseback arrangement with the Atlantic Avenue property.*fn16 During these discussions, Kontogiannis realized that Blue Ridge Farms would be a good platform through which he could sell olives and olive oil from plantations he owned in Greece and he thereafter offered to acquire a 51% interest in the Atlantic Avenue property, with Jeffrey and Richard Siegel owning the remaining 49%, and a 49% interest in Blue Ridge Farms, with Jeffrey and Richard Siegel retaining the remaining 51%.*fn17 As part of the deal, Seymour and June's shares in Blue Ridge Farms would be sold to Kontogiannis. The total cost to Kontogiannis of this deal was $31 million, including Kontogiannis's agreement to assume responsibility for the "sub-debt," which refers to loans made by family and friends of the Siegels' to the company (including the loans made by plaintiff).*fn18 Pursuant to this offer, Seymour and June Siegel would receive $4.5 million for their shares in the company, $5 million would be used for working capital, $18 million would be used to pay off the company's bank debt and $3.5 million would be allocated to the sub-debt.

The Siegels accepted Kontogiannis's offer and an agreement was signed on March 17, 2004 between Kontogiannis, Blue Ridge Farms, and each of the members of the Siegel family ("March 17 Stock Sale Agreement 1A"). Another agreement was signed the same day which was substantially the same, though it substituted Chloe Foods, S.A. (a Greek company), with Kontogiannis acting as agent, as the party making the investment instead of Kontogiannis himself ("March 17 Stock Sale Agreement 1B").*fn19 Both agreements provide for: (a) Kontogiannis to repay the bank debt and the $3.5 million sub-debt; (b) transfer of the Atlantic Avenue property to a third-party entity and subsequent leaseback by Blue Ridge Farms;*fn20 (c) a reorganization of Blue Ridge Farms, with Kontogiannis being permitted to designate three of the five Directors and certain company employees; (d) Blue Ridge Farms to obtain a new working capital loan, with $6.5 million to be guaranteed by Kontogiannis; and (e) a 51% share of the Illinois property being transferred to Kontogiannis.*fn21 Further, Seymour and June Siegel were to be paid approximately $4 million for their shares.*fn22 In both agreements, Kontogiannis represented that he was acting as an "investor" and that he "had the opportunity to investigate the business and affairs of the Company, to ask questions with respect thereto and to have full access to its books, properties and records."

After the agreements were signed, Kontogiannis began to exercise control over Blue Ridge Farms, hiring Nick Tisinenkias as the CFO and Ray Shane as in-house counsel.*fn23 The Siegels acquiesced in these actions.

Kontogiannis' Default and Extension

According to plaintiff, soon after signing the March 17 Stock Sale Agreement, Kontogiannis reneged on his obligations. In particular, Kontogiannis failed to make the $1 million down payment due on the second business day after execution of the agreement and instead asked for an additional thirty days, contending that the bank debt was larger than expected due to late fees and interest. The Siegels consented to the extension, but Kontogiannis never paid the $1 million down payment.

Sale-Leaseback of Atlantic Avenue Property

According to plaintiff, there exist two "Contracts of Sale" between Blue Ridge Farms (signed by Richard Siegel) and Greenvale (signed by Annette Apergis, Kontogiannis's daughter) dated April 1, 2004 which call for the sale of the Atlantic Avenue property to Greenvale for $20 million.*fn24 There are also two executed leases of the same date between Chloe Foods, Inc., d/b/a Blue Ridge Farms (signed by Richard Siegel), and Greenvale calling for Chloe Foods, Inc., to lease the property for a monthly rent of $165,000. According to plaintiff, this purported sale was a fraudulent transfer for which no consideration was ever received.*fn25

May 21 Stock Sale Agreement

On May 21, 2004, the day before the bank loan was due, Kontogiannis informed the Siegels that he was backing out of the March 17 Stock Sale Agreement unless the Siegels agreed to give him 100% of the Atlantic Avenue and Illinois properties.*fn26

Instead of demanding that Kontogiannis fulfill his obligations under the stock sale agreement, the Siegels agreed to this demand and, in exchange, June and Seymour Siegel began receiving payments for the shares they had transferred to Kontogiannis ("May 21 Stock Sale Agreement"). According to plaintiff, no written document was signed by Blue Ridge Farms memorializing the revised agreement and no additional consideration was furnished.

Transfer of Atlantic Avenue Property

A deed, dated May 24, 2004 and signed by Jeffrey Siegel on behalf of Blue Ridge Farms reflects a transfer of a portion of the Atlantic Avenue property to a company called "3301 Atlantic Avenue LLC" for $15 million.*fn27 The deed contains a certification reflecting a "sales contract date" of April 1, 2004, signed by Jeffrey Siegel for Blue Ridge Farms and Apergis for 3301 Atlantic Avenue LLC. Another deed, also dated May 24, 2004, was executed by Blue Ridge Farms, transferring the remaining portion of the Atlantic Avenue property to 3301 Atlantic Avenue LLC for $5 million. These deeds, with the fraudulent representations, were mailed to the Registrar of Deeds on or about May 24, 2004 and were recorded in December 2004.*fn28 According to plaintiff, since 3301 Atlantic Avenue LLC did not come into existence until April 23, 2004, there is no record of any contract of sale between Blue Ridge Farms and 3301 Atlantic Avenue LLC, and there is no record that $20 million was ever received by Blue Ridge Farms for this purported sale, these deeds and the certifications were fraudulent. Around the same time, according to plaintiff, the Illinois property was also transferred to Kontogiannis. This transfer of property without consideration deprived Blue Ridge Farms of rightful income which its creditors, such as plaintiff, could have looked to for payment for their loans.

August Stock Sale Agreement

According to plaintiff, in August 2004, Kontogiannis had another meeting during which he told Jeffrey and Richard Siegel that he was unhappy with his investment in Blue Ridge Farms and that he felt that he had been "screwed." Specifically, Kontogiannis said that Blue Ridge Farms' accounts payables were misrepresented and that he was owed $8 to $10 million. To resolve the dispute, Jeffrey and Richard Siegel personally paid Kontogiannis an additional $4.8 million.

According to plaintiff, at around the same time, Jeffrey and Richard Siegel entered into a new stock sale agreement with Kontogiannis and Chloe Foods, Inc. ("August Stock Sale Agreement"). Under that agreement (which was dated March 18, 2004 but according to plaintiff was not signed until August 2004),*fn29 Jeffrey and Richard Siegel agreed to sell their remaining shares of Blue Ridge Farms stock to "Chloe Foods, Inc." In exchange, Chloe Foods, Inc., assumed all debts and obligations of Blue Ridge Farms. Sometime after, a rider to this agreement was signed, giving Jeffrey and Richard Siegel each 20% of the reorganized company that was once Blue Ridge Farms but was now "Chloe Foods Corp.," with the option to purchase an additional 5% each for up to 10 years; the remainder of the company was owned by Chloe Foods, S.A. Jeffrey and Richard Siegel were also given the right to appoint two directors to the Chloe Foods Corp. Board of Directors and were entitled to 50% of the profits of the company.

Fraudulent Loan Documents

According to plaintiff, several weeks after Jeffrey and Richard Siegel agreed to sell their remaining shares of Blue Ridge Farms stock to Chloe Foods, Inc., Kontogiannis approached them to tell them that he did not think they were going to pay back the $4.8 million in any reasonable time. Around this time Kontogiannis had also stopped making payments to Seymour and June Siegel for their shares of the company.*fn30 According to plaintiff, Kontogiannis proposed that Jeffrey and Richard Siegel take a combined 10% of the reorganized company instead of the 50% they were entitled to under the August Stock Sale Agreement. Plaintiff alleges that Jeffrey and Richard, interested in making sure their parents were paid and in realizing the potential of the olive oil business, agreed to fraudulently rework the March 17, 2004 investment into a secured loan from 3301 Atlantic Avenue LLC.

According to plaintiff, to facilitate this "scheme" a number of fraudulently back-dated documents were prepared at Kontogiannis's direction and signed by Jeffrey and Richard Siegel. In particular, a document called "8% Secured Note Due March 19, 2009" ("Secured Note") in the amount of $11.5 million from 3301 Atlantic Avenue LLC was drawn up and dated March 19, 2004, and was signed by Jeffrey Siegel on behalf of Blue Ridge Farms; plaintiff alleges that Jeffrey Siegel did not in fact sign the document on March 19, 2004 but rather did so much later, at some point after August 2004.*fn31*fn32 As evidence of the fraudulent nature of this document, plaintiff notes that 3301 Atlantic Avenue LLC did not come into existence as a legal entity until April 23, 2004 and on the date the note was executed (and up to the time of this action), Kontogiannis had not ...

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