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Monteleone v. Leverage Group

January 29, 2009

FRANCES MONTELEONE, LINDA RODRIGUEZ, ELYSE SCILEPPI, FRANK J. MONTELEONE, AND WENDY MONTELEONE, PLAINTIFFS,
v.
THE LEVERAGE GROUP, LEVERAGE OPTION MANAGEMENT CO., INC., LEVERAGE MANAGEMENT LLC, NORTH AMERICAN FINANCIAL, PHILIP BARRY LLC, PHILIP BARRY, HK HOLDINGS, LLC, AND JOSEPH'S DEVELOPMENT CORPORATION, DEFENDANTS.
MARGARET SCHAEFER BARGLOW, RAYMOND BARGLOW, PAMELA MONTANARO, SIRI SCULL, CHARLES SCULL, ROBERT WOLFSON, AND MAHALIA PUGATCH, PLAINTIFFS,
v.
THE LEVERAGE GROUP, LEVERAGE OPTION MANAGEMENT CO., INC., LEVERAGE MANAGEMENT LLC, NORTH AMERICAN FINANCIAL, PHILIP BARRY LLC, PHILIP BARRY, HK HOLDINGS, LLC, AND JOSEPH'S DEVELOPMENT CORPORATION, DEFENDANTS.
GENE BIANCO AND ANITA BIANCO, PLAINTIFFS,
v.
THE LEVERAGE GROUP, LEVERAGE OPTION MANAGEMENT CO., INC., LEVERAGE MANAGEMENT LLC, NORTH AMERICAN FINANCIAL, PHILIP BARRY LLC, PHILIP BARRY, HK HOLDINGS, LLC, AND JOSEPH'S DEVELOPMENT CORPORATION, DEFENDANTS.
PHILIP M. BRAY, IN-GRID V NOREIKO-BRAY, INDIVIDUALLY AND AS TRUSTEE FOR NORAY CHARITABLE REMAINDER UNITRUST, AND LABEL SERVICES, INC., PLAINTIFFS,
v.
THE LEVERAGE GROUP, LEVERAGE OPTION MANAGEMENT CO., INC., LEVERAGE MANAGEMENT LLC, NORTH AMERICAN FINANCIAL, PHILIP BARRY LLC, PHILIP BARRY, HK HOLDINGS, LLC, AND JOSEPH'S DEVELOPMENT CORPORATION, DEFENDANTS.
CARL GAMBELLO, CAROLE GAMBELLO, AND ADELE DISARMATO, PLAINTIFFS,
v.
THE LEVERAGE GROUP, LEVERAGE OPTION MANAGEMENT CO., INC., LEVERAGE MANAGEMENT LLC, NORTH AMERICAN FINANCIAL, PHILIP BARRY LLC, PHILIP BARRY, HK HOLDINGS, LLC, AND JOSEPH'S DEVELOPMENT CORPORATION, DEFENDANTS.
MIRIAM B. GREENBERGER, PLAINTIFF,
v.
THE LEVERAGE GROUP, LEVERAGE OPTION MANAGEMENT CO., INC., LEVERAGE MANAGEMENT LLC, NORTH AMERICAN FINANCIAL, PHILIP BARRY LLC, PHILIP BARRY, HK HOLDINGS, LLC, AND JOSEPH'S DEVELOPMENT CORPORATION, DEFENDANTS.
AMADEO DELMONACO, PIEDAD DELMONACO MICHELLE DELMONACO, BRANDON DELMONACO, NICOLE DELMONACO, ROSA ARMETTA, KARAMCHAD BALKARAN, GINO CITRO, STEVEN DOYLE, KEITH PENNINGTON, JOSEPH FONTANA, MARCO FONTANA, NUNZIO FONTANA, DAVID BREINER, MARC KOWALSKI, GEORGE TRIVINO, GERMAN VALDAVIA, AND MAZINE ALBERT, PLAINTIFFS,
v.
THE LEVERAGE GROUP, LEVERAGE OPTION MANAGEMENT CO., INC., LEVERAGE MANAGEMENT LLC, NORTH AMERICAN FINANCIAL, PHILIP BARRY LLC, PHILIP BARRY, HK HOLDINGS, LLC, AND JOSEPH'S DEVELOPMENT CORPORATION, DEFENDANTS.
ANN MARIE DELIA, WILLIAM DELIA, ROBERT SWEENEY, VERONICA SWEENEY, TARA SROKA F/K/A/ TARA SWEENEY, AND LUDVIG HAUGEDAL, PLAINTIFFS,
v.
THE LEVERAGE GROUP, LEVERAGE OPTION MANAGEMENT CO., INC., LEVERAGE MANAGEMENT LLC, NORTH AMERICAN FINANCIAL, PHILIP BARRY LLC, PHILIP BARRY, HK HOLDINGS, LLC, AND JOSEPH'S DEVELOPMENT CORPORATION, DEFENDANTS.
BRIAN MARCHESE, RUTH MARCHESE, AND MICHAEL MARCHESE PLAINTIFFS,
v.
THE LEVERAGE GROUP, LEVERAGE OPTION MANAGEMENT CO., INC., LEVERAGE MANAGEMENT LLC, NORTH AMERICAN FINANCIAL, PHILIP BARRY LLC, PHILIP BARRY, HK HOLDINGS, LLC, AND JOSEPH'S DEVELOPMENT CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Charles P. Sifton (electronically signed) United States District Judge

SIFTON, Senior Judge.

AMENDED MEMORANDUM AND ORDER

Plaintiffs Frances Monteleone ("Monteleone"), Margaret Shaefer Barglow ("Barglow"), Carl Gambello ("Gambello"), Miriam Greenberger ("Greenberger"), Philip Bray ("Bray"), Amadeo del Monaco ("Monaco"), Gene Bianco ("Bianco"), the Estate of William A. Delia ("Delia"), and Brian Marchese ("Marchese"), among others*fn1 (collectively, "plaintiffs"), commenced actions against defendants the Leverage Group ("Leverage Group"), Leverage Option Management Co., Inc. ("Leverage Option Management"), Leverage Management, LLC ("Leverage Management"), North American Financial ("North American"), Philip Barry ("Barry"),*fn2 and Philip Barry, LLC ("Barry, LLC")*fn3 (collectively, "defendants"). These cases were consolidated for pretrial purposes on November 17, 2008. On December 24, 2008, all plaintiffs filed an Amended Consolidated Complaint, which included the following additional defendants: Saint Joseph's Development Corporation and HK Holdings, LLC.*fn4 The Amended Consolidated Complaint listed the following causes of action: (1) violation of federal securities law, 15 U.S.C. §§ 78c(a)(10), 78j(b) and S.E.C. Rule 10b-5; (2) violation of New Jersey securities law, N.J.S.A. 49:3-17; (3) violation of Federal RICO, 18 U.S.C. 1962(c); (4) Federal RICO conspiracy, 18 U.S.C. 1962(d); violation of New Jersey RICO, N.J.S.A. 2C:41-2(c); (6) New Jersey RICO Conspiracy, N.J.S.A. 2C:41-2(d); (7) fraud; (8) conversion; (9) negligent misrepresentation; (10) breach of fiduciary duty; (11) breach of contract; (12) breach of implied covenants of good faith and fair dealing; and (13) unjust enrichment. Plaintiffs seek compensatory, consequential, and punitive damages, attorneys' fees, and costs. Now before the Court are Greenberger, Gambello, Bray, Bianco, Barglow, and Monteleone's motions for partial summary judgment as to liability on the claims for fraud, conversion, breach of contract, breach of covenant of good faith and fair dealing, unjust enrichment, misrepresentation, and breach of fiduciary duty.*fn5 In addition, plaintiffs have made motions for partial summary judgment on both liability and damages. For the reasons set forth below, the motions are granted.

BACKGROUND

The reader's familiarity with the details of the plaintiffs' claims and prior procedural history of this case is assumed.*fn6 The following facts underlying the liability claims are drawn from the pleadings and affidavits in connection with these motions.

The Parties

Defendant Barry is a citizen of New York and resides in Brooklyn, New York. Defendant The Leverage Group is an unincorporated business entity with its place of business also at 477 82nd street, Brooklyn, New York. Defendant Leverage Option Management Co., Inc., is a New York State business corporation with its place of business at 477 82nd street, Brooklyn, New York. Defendant Leverage Management LLC is a New York State limited liability corporation with its place of business at 477 82nd street, Brooklyn, New York. Defendant North American Financial is an unincorporated business entity with its place of business at 477 82nd street, Brooklyn, New York. Defendant Philip Barry LLC is a New York State limited liability corporation with its place of business at 477 82nd street, Brooklyn, New York. Defendant Barry is the sole owner, officer and shareholder of Leverage Option Management Co., Inc., Leverage Management LLC and Philip Barry LLC. Defendant is also the sole owner of The Leverage Group and of North American Financial (which is an alias of The Leverage Group).

Plaintiffs are persons and entities who at various times over the past twenty years invested in entities owned and operated by defendants.

The Investment Scheme

At various points in the last twenty years, plaintiffs began investing their money with defendant Barry and his companies.*fn7 In each instance, Barry represented to the investor that he or she would receive an interest rate of 12.55% on any investment made with him, that the principal could not decrease, and that the investor could remove his or her funds at any time.*fn8 Investors opened investment accounts by making initial deposits, whereupon they were assigned account numbers.*fn9 Thereafter, investors received quarterly statements, which also indicated that the interest on the investments would be 12.55%.*fn10 These statements indicated that the investments were growing at the promised rate.*fn11

Many plaintiffs continued to invest funds, resulting in several individual accounts containing hundreds of thousands of dollars.*fn12

At various points in the past year, plaintiffs attempted to remove their funds from the investment accounts, but were unsuccessful.*fn13

Defendant Barry either made representations to the plaintiffs about why the money was not available, or simply refused to return the funds.*fn14 Barry refused to show some plaintiffs any documentation concerning how the money was invested.*fn15 Plaintiffs thereafter commenced legal action to recover the funds.

Procedural History

Plaintiffs initiated the first of these actions in May and July of 2008. On August 11, 2008 Judge Mauskopf issued a preliminary injunction in the Gambello, Barglow and Monteleone cases, enjoining defendants from transferring or otherwise disposing of any of their assets without an order of the Court, and ordered expedited discovery. Judge Mauskopf found that there had been a pattern of misrepresentation, based on her finding that defendant Barry transferred real property, purchased with investment funds belonging to plaintiffs, from himself to a new entity, Philip Barry LLC, and based on the fact that money in all three actions was unaccounted for even after repeated demands for the money or for an accounting of the money. Transcript of Hearing Before Judge Mauskopf at p. 49. Judge Mauskopf found that there was a risk of continued dissipation of assets because of evidence that the investors' money had been used to purchase a building in Kings County that is the defendants' place of business, and to make mortgage payments, and to pay for defendant Barry's personal expenses. Id. at p. 49, 50.

On October 7, 2008, I granted plaintiffs' motion to attach certain assets belonging to defendants in the Monteleone, Gambello, Bianco, and Barglow actions. On November 2, 2008, I granted plaintiffs' motion for attachment in the Greenberger and Bray actions. On November 17, I ordered that all cases be consolidated for pretrial purposes, without prejudice to separate trials on the individual complaints. On November 21, 2008, the del Monaco case was transferred to me as related to the other cases in the consolidated action. On November 24, 2008, the Delia case was transferred to me as a related case. The Marchese action was filed on November 26, 2008 and has not yet been transferred to me. However, the Marchese claims are included in the Amended Consolidated Complaint, which was filed on December 24, 2008. The Monteleone, Greenberger, Bianco, Barglow, Bray, and Gambello plaintiffs have all filed motions for summary judgment, which are treated as if filed on behalf of all plaintiffs pursuant to the consolidation order, and will be addressed together in this opinion.

DISCUSSION

I. Summary Judgment Standard

A court must grant a motion for summary judgment if the movant shows that "there is no genuine issue as to any material fact" and that "the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). Summary judgment is appropriate "[w]hen the record taken as a whole could not lead a rational trier of fact to find for the non-moving party." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

The party seeking summary judgment has the burden of demonstrating that no genuine issue of material fact exists. Apex Oil Co. v. DiMauro, 822 F.2d 246, 252 (2d Cir. 1987). In order to defeat such a motion, the non-moving party must raise a genuine issue of material fact. "An issue of fact is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Elec. Inspectors, Inc. v. Vill. of E. Hills, 320 F.3d 110, 117 (2d Cir. 2003). A fact is material when it "might affect the outcome of the suit under the governing law."

Id. Although all facts and inferences therefrom are to be construed in the light most favorable to the non-moving party, the non-moving party must raise more than a "metaphysical doubt" as to the material facts. See Matsushita, 475 U.S. at 586; Harlen Assocs. v. Vill. of Mineola, 273 F.3d 494, 498 (2d Cir. 2001). The non-moving party may not rely on conclusory allegations or unsubstantiated speculation. Twin Labs., Inc. v. Weider Health & Fitness, 900 F.2d 566, 568 (2d Cir. 1990). Rather, the non-moving party must produce more than a scintilla of admissible evidence that supports the pleadings. First Nat'l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 289-90 (1968); Niagara Mohawk Power Corp. v. Jones Chem. Inc., 315 F.3d 171, 175 (2d Cir. 2003). In deciding such a motion the trial court must determine whether "after resolving all ambiguities and drawing all inferences in favor of the non-moving party, a rational juror could find in favor of that party." Pinto v. Allstate Ins. Co., 221 F.3d 394, 398 (2d Cir. 2000).

II. Reverse Veil Piercing

Plaintiffs argue on a reverse veil-piercing theory that they are entitled to summary judgment against certain defendant companies who did not directly participate in certain actions. Under New York law, "a plaintiff seeking to pierce the corporate veil must prove both complete domination and that the domination was used to commit a fraud with respect to the transaction at issue." Mars Electronics of N.Y., Inc. v. U.S.A. Direct, Inc., 28 F.Supp.2d 91, 97 (E.D.N.Y.1998); accord American Fuel Corp. v. Utah Energy Dev. Co., 122 F.3d 130 (2d Cir.1997). Piercing analysis is typically used to hold individuals liable for the actions of a corporation that they control. See American Fuel Corp. v. Utah Energy Dev. Co., 122 F.3d 130, 133 (2d Cir. 1997).

New York law also recognizes "reverse piercing," which seeks to hold a corporation accountable for actions of its shareholders. See American Fuel Corp, 122 F.3d at 133. In a reverse veil-piercing claim, the plaintiff must allege that the owner exercised domination over the corporation and that the domination was used to commit a fraud or wrong. JSC Foreign Econ. Ass'n Technostroyexport v. Int'l Dev. and Trade Servs., Inc., 295 F.Supp.2d 366, 379 (S.D.N.Y. 2004) (citing Am. Fuel Corp. v. Utah Energy Dev. Co., 122 F.3d 130, 134 (2d Cir. 1997). Courts apply the equitable factors used in veil piercing claims in the reverse veil-piercing context. JSC, 306 F.Supp.2d. at 485-86. Courts apply the same veil-piercing analysis to LLC defendants as to corporations. See MAG Portfolio Consult, GmbH v. Merlin Biomed Group, LLC, 268 F.3d 58, 63-64 (2d Cir. 2001).

The equitable factors considered by courts in veil-piercing and reverse veil-piercing claims are: "(1) the absence of the formalities and paraphernalia that are part and parcel of the corporate existence, i.e., issuance of stock, election of directors, keeping of corporate records and the like, (2) inadequate capitalization, (3) whether funds are put in and taken out of the corporation for personal rather than corporate purposes, (4) overlap in ownership, officers, directors, and personnel, (5) common office space, address and telephone numbers of corporate entities, (6) the amount of business discretion displayed by the allegedly dominated corporation, (7) whether the related corporations deal with the dominated corporation at arms length, (8) whether the corporations are treated as independent profit centers, (9) the payment or guarantee of debts of the dominated corporation by other corporations in the ...


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