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Palm Beach Strategic Income, Lp v. Stanley P. Salzman

February 7, 2011


The opinion of the court was delivered by: Seybert, District Judge:


Plaintiff Palm Beach Strategic Income ("PBSI") brought this action against the Defendants on January 21, 2010 one day after the Court dismissed, for lack of diversity jurisdiction, a nearly identical action that PBSI brought against Defendant Stanley Salzman. Defendants have moved to dismiss. For the following reasons, those motions are GRANTED. The Complaint is DISMISSED WITHOUT PREJUDICE, but with one final opportunity to replead.

BACKGROUND I. The Proposed Transaction & Subsequent Events At its core, this action arises out of a complex, multi-party financing transaction which involved $3.5 million put in escrow with Defendant Stanley Salzman and Defendant Stanley Salzman, P.C. ("the P.C.," and together with Stanley Salzman, "the Stanley Salzman Defendants"). Ultimately, the proposed transaction(s) underlying the escrow agreement(s) failed, and the Stanley Salzman Defendants released the escrowed funds to third-parties.

While not explicitly denoted as such, the alleged scheme appears to have been a highly sophisticated version of an "advance fee" fraud, similar to the more commonly known "Nigerian fraud" or "419 fraud." In brief, an "advance fee fraud is perpetrated by enticing the victim with a bogus 'business' proposal which promises millions of U.S. dollars as a reward," provided that the victim first pay a small tax or fee, "supposedly to facilitate the processing and remittance of the alleged funds." In re Guillet, 398 B.R. 869, 883 (E.D. Tex. 2008) (quoting a Central Bank of Nigeria public statement). Here, PBSI alleges that the Stanley Salzman Defendants, and various non-parties, promised to facilitate $100 million in financing, if PBSI first agreed to place a $3.5 million "arrangement fee" in escrow. But the promised financing was mythical, and most of the escrowed arrangement fee was stolen.

More specifically, PBSI alleges that, in 2006, ATN Managed Services, Inc. ("ATN") proposed that PBSI place money in escrow as part of a transaction between ATN, Copicard Systems Holdings LLC ("Copicard"), and 358 1276 Canada, Inc. d/b/a Simco Group ("Simco")*fn1 to make funds available for a charitable entity based in Puerto Rico. (Compl. ¶¶ 10--13, 16.) PBSI was approached after ATN contacted Martin Halley of Benington Securities, because ATN, Copicard, and Simco lacked the initial funds to kick off the transaction, and sought Benington's help in securing the necessary financing. (Id. ¶ 14.) Halley proposed that a client of his would provide funding, but only after $3.5 million was fully paid as an "arrangement fee." (Id. ¶ 15.) To this end, an interim escrow of the arrangement fee was suggested, with Halley recommending that Stanley Salzman be used as the escrow agent. (Id. ¶ 17.) PBSI agreed to put the money into escrow, and, PBSI alleges, all of the parties entered into an escrow agreement on May 19, 2006 ("May Escrow Agreement"). (Id. ¶ 23.)

The actual May Escrow Agreement, however, conflicts with those last allegations.*fn2 PBSI did not, in fact, sign the agreement, is not a party to it, and is not designated as the Escrow Provider under it. (See Compl. Ex. A.) Rather, an apparently related company, Palm Beach Capital Management LLC ("PBCM") signed the agreement, becoming a party to it as Escrow Provider. (Id.) Curiously, and perhaps troublingly, the Complaint is utterly silent about PBCM's role. The Complaint does not mention PBCM, much less explain PBCM's relationship to PBSI. And the Complaint does not even attempt to allege that PBSI might have some kind of non-party standing to enforce the Agreement, such as that of an assignee or third-party beneficiary.

Notwithstanding PBCM's contractual role as Escrow Provider, PBSI alleges that it was the entity that wire-transferred the $3.5 million to the Stanley Salzman Defendants on May 30, 2006. (Compl. ¶ 30). PBSI alleges that the Stanley Salzman Defendants then acknowledged receipt of both the May Escrow Agreement and the escrowed funds. (Id. ¶ 31.)

On June 24, 2006, the transaction was terminated when the verifications required by the May Escrow Agreement could not be obtained. (Id. ¶ 33.) These verifications were intended to certify that a company named Kunststofftechnik Vogelsang GmbH had "blocked $100 million in its German Deutsche Bank account." (Id. ¶ 24.) PBSI alleges that ATN informed it that the transaction had failed, and that alternatives were being pursued. (Id. ¶ 35.) PBSI further alleges that ATN sent it a letter on July 18, 2006, seeking PBSI's authority to use the escrowed funds in three different potential financing transactions. (Id. ¶ 38.) PBSI granted this authority to ATN and, subsequently, another escrow agreement was entered into in July, where PBSI is not identified as a party. (Id. ¶¶ 40--41; Def. Reply Br. Ex. 1 at 5.)

The July Escrow Agreement required the Stanley Salzman Defendants to obtain bank verifications prior to releasing the escrowed money. (Compl. ¶ 43.) PBSI alleges that the Stanley Salzman Defendants failed to properly verify the necessary documents, and instead relied on "patently forged" documents. (Id. ¶¶ 50--60.) On July 26, 2006, Stanley Salzman approved the release of the escrowed $3.5 million, taking $70,000 for himself and the P.C. as a fee, and wiring the rest to bank accounts in Turkey, Dubai, and Portugal, among other places, without PBSI's consent or authorization. (Id. ¶¶ 62--67.) On July 1, 2008, following the PBSI's commencement of the prior action, PBSI alleges that Stanley Salzman transferred his share of the home he owned jointly with his wife, Marilyn Salzman, to her, allegedly in an attempt to defraud his creditors. (Id. ¶¶ 79-- 80, 134.)

II. Allegations Supporting the Civil RICO Charge

In support of the civil RICO claim, PBSI alleges that "the [Stanley] Salzman Defendants acted in concert with Sino, Sampaio, Halley, Martin Gibbins . . . and others (collectively, the "Enterprise") to misappropriate PBSI's $3.5 million."*fn3 (Id. ¶ 68.) Claiming that this transaction was part of a common scheme, PBSI alleges that Sampaio, Halley, and Gibbins "would falsely represent that they had contacts with successful European businesses with substantial cash on hand. They held themselves out as providers of financial services to companies . . . that required use of such substantial funds." (Id. ¶ 69.) Allegedly, the Stanley Salzman Defendants were selected to act as escrow agent because Stanley Salzman carried malpractice insurance, and to "lend an air of legitimacy" to the tranasactions. (Id. ¶ 70.) To disguise the scheme, PBSI alleges that the Enterprise provided the Stanley Salzman Defendants with forged documents they could "rely" on before releasing the funds. (Id. ¶ 71.) PBSI alleges that the Enterprise engaged in fraudulent transactions similar to the one here on at least three other occasions throughout the United States, ranging from the summer of 2007 to early 2008, which resulted in lawsuits against the Stanley Salzman Defendants in Texas, Georgia, and another currently pending before this Court. (Id. ¶¶ 74--76.) While it is not entirely clear from the Complaint the relationships between all of these parties, Fernando Sampaio is alleged to be associated with Sino Iberian Holdings Ltd. ("Sino"), and Sino is alleged to be Halley's designee. (Id. ¶¶ 18, 65.) The Complaint contains no information about Gibbins, aside from the allegation that he is a member of the Enterprise, and participated in this scheme and others similar to it. (Id. ¶¶ 68, 69, 70, 74--76.) Information regarding Sampaio's involvement in the Enterprise is also noticeably absent.

PBSI claims that the Stanley Salzman Defendants intentionally defrauded PBSI by inducing it to place money in escrow "knowing that no legitimate financial transaction was actually contemplated," with the knowledge that they intended to release the funds after knowingly receiving forged documents. (Id. ¶ 122.) PBSI further alleges mail and wire fraud as the RICO claim's predicate acts, based on allegations that the Enterprise arranged "to circulate and obtain signatures on the Transaction documents, obtain the $3.5 million from PBSI and to improperly disburse PBSI's $3.5 million to unauthorized individuals overseas." (Id. ¶ 123.) Additionally, PBSI alleges that the Enterprise lacks a legitimate business purpose, and attached as exhibits the complaints from the actions against Stanley Salzman in Texas, Georgia, and the other action before this Court. (Id. ¶¶ 126, 128.)

III. PBSI's Earlier Action in this Court

This action is not PBSI's first attempt to obtain relief for the events underlying this Complaint. PBSI previously brought suit in 2008 on the basis of diversity of citizenship between itself and the Defendants, alleging that it was a citizen of Florida and that the Salzman Defendants were citizens of New York. After the case was transferred here from the Southern District ...

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