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Ammirato v. Duraclean International

February 8, 2010

VINCENT J. AMMIRATO, GARY J. KULIK, KENNETH H. SALBU, ROBERT J. MURPHY AND LOUIS VENGILIO, PLAINTIFFS,
v.
DURACLEAN INTERNATIONAL, INC., DEFENDANT.



The opinion of the court was delivered by: Lindsay, Magistrate Judge

MEMORANDUM AND ORDER

The plaintiffs, Vincent J. Ammirato, Gary J. Kulik, Kenneth H. Salbu, Robert J. Murphy and Louis Vengilio, commenced this action against the defendant, Duraclean International, Inc. ("Duraclean International") on November 7, 2007, in the Suffolk County Supreme Court. On December 14, 2007, Duraclean International removed the action to federal court. The plaintiffs contend that Duraclean International breached its contract with the plaintiffs and violated General Business Law § 349 and 18 U.S.C. § 1961, et seq. ("RICO"), when it failed to repay their loans. Duraclean International contends that the loans were made to Steven Diaz and/or to his Duraclean franchise, and thus, Duraclean International is not liable for the obligations. Duraclean International also contends that there is no merit to the plaintiffs' deceptive practices and RICO claims. Duraclean International has now moved for summary judgment. For the reasons set forth herein, the motion is granted, in part, and denied, in part.

BACKGROUND

A. The Entities

Duraclean International is an Illinois corporation with its principal place of business in Arlington Heights, Illinois. See Def.'s Rule 56.1 Stmt. at ¶ 1.*fn1 Duraclean International is in the business of providing cleaning and care services for carpets, rugs, upholstery, and other personal property through franchised dealers. Id. at ¶ 2. Duraclean Fabric Specialist by J & S, Inc. d/b/a Duraclean Specialists ("Duraclean Specialists") is a New York corporation owned and operated by Steven Diaz ("Diaz"). Id. at ¶¶ 3, 5. From 2000 to 2006, Duraclean Specialists was a franchisee of Duraclean International pursuant to an Ownership Agreement dated December 28, 2000, and renewed September 20, 2005. Id. at ¶ 4.

Diaz is also the owner of Duraclean Specialist, Inc. ("DSI"), Duraclean Remediation Specialists, Inc. ("Duraclean Remediation"), and Duraclean Environmental. Id. at ¶¶ 13, 19; see also Kelly Aff., Ex. A, Diaz Transcript at 111. Duraclean International contends that pursuant to a Guaranty and Assumption of Obligations Agreement, DSI guaranteed the obligations of Duraclean Specialist to Duraclean International. Def.'s Rule 56.1 Stmt.at ¶ 15. The plaintiffs dispute this fact. Pls. Resp. at ¶ 15.

As a franchisee, Duraclean Specialist was designated a primary marketing area covering parts of Long Island were it could perform carpet and upholstery cleaning and restoration. See Kelly Aff., Ex. A, Diaz Transcript at 20. Duraclean Specialists also participated in larger jobs solicited by Duraclean International's National Team. Id. at 21-23. According to Diaz, the National Team jobs were, at times, marketed through Duraclean International and, at other times, through Duraclean Specialists, and often involved the participation of multiple franchises. Id. at 24-25. Duraclean International contends that, as a franchisee, Duraclean Specialists set its own prices, determined its own working hours, selected its own customers and service people, and controlled its own franchise and income expenses. Def.'s Rule 56.1 Stmt. at ¶¶ 6-8. The plaintiffs dispute Duraclean International's characterization of its franchises. The plaintiffs contend that Duraclean International worked with it franchises on large jobs, assisted in the presentation of qualification portfolios to prospective clients, and provided financial support for its franchisee's projects. Pls. Resp. at ¶¶ 6-8.

When Diaz first opened his franchise, Duraclean International was owned by Vince Caffarello ("Caffarello") and Wilbur Gage. See Kelly Aff., Ex. A, Diaz Transcript at 41. Sometime in 2003, Diaz purchased Caffarello's shares in Duraclean International giving him a 50% ownership interest in the company. Id. at 43. Diaz purchased the stock with a note made payable to Caffarello.*fn2 Id. Consistent with his ownership interest, Diaz became a member of the board of directors of Duraclean International. Id. at 57. However, Duraclean International's bylaws provided that all loans were to be authorized by a resolution of the board of directors. See Def.'s Rule 56.1 Stmt.at ¶ 70.

Despite his new ownership interest, Diaz and his franchise continued to owe Duraclean International money, were late with job reports, and bounced checks made payable to Duraclean International. See Kelly Aff., Ex. A, Diaz Transcript at 163-65. On February 11, 2006, Duraclean International terminated Duraclean Specialists' franchise agreement. See Def.'s Rule 56.1 Stmt. at ¶ 17. Thereafter, Duraclean International obtained a default judgment against Duraclean Specialists in the amount of $493,766.66. See id. at ¶ 18.

B. The Plaintiffs' Loans

The plaintiffs, Vincent Ammirato ("Ammirato"), Gary J. Kulik ("Kulik"), Kenneth H. Salbu ("Salbu"), Robert J. Murphy ("Murphy") and Louis Vengilio ("Vengilio") are all residents of Suffolk County, New York. Ammirato, Kulik, Salbu, and Murphy are teachers in the Mount Sinai School District and met Diaz when they coached or taught his children. See Marcus Decl., Exhs. 2-5. Vengilio is one of Diaz's neighbors. See Kelly Aff., Ex. F, Vengilio Transcript at 10-12. In 2005, the plaintiffs made loans to Diaz totaling $750,000. The circumstances surrounding each of the loan transactions is necessary to an understanding of the parties' arguments, and thus, the court sets forth the pertinent details of each of the loans below.

1. The Ammirato Loan

Vincent Ammirato is a high school teacher and football coach. See Kelly Aff., Ex. D, Ammirato Transcript at 8. Ammirato met Diaz in the fall of 2000 when their sons played football on the same team. Id. Between 2000 and 2005, Ammirato and Diaz played at golf outings together and socialized at a Christmas party. Id. at 10. In May 2005, Diaz told Ammirato "he was looking for people to invest in his franchised company named Duraclean located in Yaphank, New York." See Marcus Decl., Ex. 4, Statement of Vincent Ammirato. Diaz told Ammirato that 'his Duraclean franchise was very successful and prosperous in the mold remediation and clean-up business" and that "he had just acquired a seven million dollar contract for his Duraclean franchise with a hotel in Las Vegas, . . . and he needed to pay sub-contractors cash up front in order to get the job started." Id. Diaz told Ammirato that he needed a $100,000 loan that he would pay back with $15,000 interest in six months. Id.

Ammirato and his wife took out a home equity loan for $100,000 in order to make the investment. Id. On June 8, 2005, Ammirato gave Diaz a check made payable to "Duraclean" for $100,000. Id. Diaz promised to repay the loan in six months plus $15,000 in interest and gave Ammirato two checks post-dated December 8, 2005; one check for $100,000 and one check for $15,000. Id.; see also Def.'s Rule 56.1 Stmt. at ¶¶ 21-22; but see Pls. Resp. at ¶ 21-22. Ammirato's check was deposited into the account Diaz maintained for his company, Duraclean Remediation. See Def.'s Rule 56.1 Stmt. at ¶ 24.

In or about December 2005, Diaz convinced Ammirato to extend his loan for an additional six months and gave Ammirato two new checks postdated June 8, 2006. Id. at ¶¶ 25-28; see also Marcus Decl., Ex. 4, Statement of Vincent Ammirato. The new postdated checks were drawn on the operating account Diaz maintained for DSI. Id. On April 4, 2006, Diaz gave Ammirato two additional checks, both in the amount of $3,750, to pay Ammirato for the additional interest accrued when the loan was extended. Id. at ¶¶ 29-30; see also Marcus Decl., Ex. 4, Statement of Vincent Ammirato. The two interest checks were drawn on an account that Diaz maintained for Duraclean Remediation. Id. Ammirato was able to cash the two $3,750 interest checks but the postdated checks totaling $115,000 bounced. Id. at ¶ 31.

2. The Kulik Loan

Gary Kulik is a also a Mount Sinai school teacher and a football coach. See Marcus Decl., Ex. 3, Statement of Gary Kulik. Kulik met Diaz in 2003 when he coached Diaz' son's football team. Id. Diaz asked Kulik "for a $200,000 loan to his Duraclean franchise so he could pay subcontractors to complete storm related jobs in Florida he had already acquired." Id. Diaz told Kulik that the money would only be used "for the purpose of paying subcontractors" and that "insurance companies and FEMA would pay his Duraclean franchise for the storm related jobs performed after the jobs were finished." Id. Diaz told Kulik that although "his franchise was very successful," but that "his Duraclean franchise did not have the cash on hand . . . since all of his and Duraclean's cash were being used for other projects." Id.

Kulik and his wife took out a home equity loan for $200,000 in order to make the investment. Id. On February 11, 2005, Kulik gave Diaz a check made payable to "Duraclean" for $200,000 with the expectation that Diaz would repay the loan in two months plus $20,000 in interest. Id.; see Def.'s Rule 56.1 Stmt. at ¶ 33, 35. Kulik's check was deposited into the account Diaz maintained for Duraclean Remediation. See Def.'s Rule 56.1 Stmt. at ¶ 36.

In April 2005, Diaz asked Kulik to extend his loan for an additional six months because "he was still waiting for payment from the insurance companies and FEMA." See Marcus Decl., Ex. 3, Statement of Gary Kulik. Diaz promised to pay Kulik an additional twenty percent for the extra six months and, when he agreed, Diaz gave Kulik two postdated checks totaling $264,000. Id.; see also Def.'s Rule 56.1 Stmt. at ¶ 39. The postdated checks were drawn on the operating account Diaz maintained for Duraclean Remediation. Id. On February 9, 2006, the two postdated checks bounced. Id. at ¶ 41.

3. The Salbu Loan

Kenneth Salbu is a teacher in Mount Sinai who is friendly with Vincent Ammirato. See Marcus Decl., Ex. 5, Statement of Kenneth Salbu. In December 2005, Ammirato told Salbu about the investment he had made with "Diaz and his franchised company"and that he was going to earn $15,000 in interest in six months. Id. Salbu asked to meet Diaz and a meeting was arranged at "Diaz's Duraclean office located in Yaphank, New York." Id. Diaz explained to Salbu that "there was a lot of money to be made" and "how he needed cash to pay subcontractors up front to get jobs started that he had already acquired contracts on." Id. Salbu told Diaz he wanted "to loan [Diaz's] Duraclean franchise $100,000, the same amount Ammirato did ...


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