The opinion of the court was delivered by: Robert P. Patterson, Jr., U.S.D.J.
Plaintiff Technology in Partnership ("TIP" or "Plaintiff") filed a complaint on October 22, 2010, alleging that defendants created an enterprise with a common goal to divert and steal funds from TIP. See (Compl. ¶ 1.) Specifically, Plaintiff alleges a fraudulent scheme taking place over the nearly thirteen year period between October 1997 and May 2010 in violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962 ("RICO") and other state law claims.
On January 26, 2011, defendants Alan Zverin ("Zverin"), Zverin & Fischer, LLP ("Z&F"), and Eisman, Zucker, Klein & Ruttenberg, LLP ("EZKR") (collectively, "Accountant Defendants") moved pursuant to Fed. R. Civ. P. 12(b)(6) to dismiss all claims against them. Defendants Edward Rudin ("Rudin"), Alyse Rudin, Gloria Rudin, Alyfunkids, Inc. d/b/a/ My Gym Children's Fitness Center ("Alyfunkids"), My Gym Westfield, Inc. d/b/a My Gym Children's Fitness Center ("My Gym Westfield"), My Gym Glen Rock, Inc. ("My Gym Glen Rock"), and Rudin Appraisals, LLP ("Rudin Appraisals") (collectively, "Rudin Defendants") moved separately to dismiss Plaintiff's Complaint in its entirety on statute of limitations grounds, or in the alternative, to hold a hearing with limited discovery pursuant to Fed. R. Civ. P. 12(i).
For the reasons stated below, Accountant Defendants' motion to dismiss is granted and Rudin Defendants' motion to dismiss and motion for preliminary hearing are denied.
Plaintiff is a closely-held corporation formed to provide computer consulting services, including installation and support to businesses. (Compl. ¶ 28.) On October 3, 1997, Robert Baker ("Baker") and Rudin incorporated TIP in New Jersey, and during the period of the claims, its principal place of business was in New York. (Id. ¶¶ 34, 14-15.) Baker and Rudin were the sole shareholders and officers of TIP: Baker became President of TIP and received 60% of TIP's stock, and Rudin became Vice-President or Secretary of TIP and received 40% of TIP's stock. (Id. ¶¶ 30-32.) Rudin has an accounting background, and was responsible for TIP's day-to-day operations and TIP's financial filings. (Id. ¶¶ 32, 35.) Plaintiff's counsel acknowledged at oral argument that between October 1997 and May 2010, Baker received and reviewed Schedule K-1 statements annually, but did not otherwise perform his duties as a director and officer of TIP until May 2010, when he approached Rudin and asked for further documentation -- which he was denied -- after which Baker locked Rudin out of the company and gained access to financial documents and records that were on the company's file server. (Tr. at 26-27.) Based on these financial documents and records, Baker, who brings this action on behalf of TIP, "first discerned the existence of the Enterprise and its scheme to divert and steal funds from TIP . . . ." (Compl. ¶ 43.) The Complaint cites to no other sources for the allegations made therein.
Accountant Defendants were appointed by Rudin as accountants for TIP. Rudin first engaged Z&F as TIP's accountants. (Id. ¶ 36.) At Z&F, Robert Fischer, Rudin's brother-in-law, "took direction from Rudin concerning TIP's accounting and tax filings" until his death. (Id. ¶¶ 37-38.) Afterwards, Zverin and his new firm EZKR were responsible for TIP's accounting and tax filings. (Id. ¶ 38.) Plaintiff contends that Baker never received TIP's corporate tax returns or other financial documents, other than the yearly Schedule K-1 statements, which only contained TIP's reported profit or loss. (Id. ¶¶ 39, 44, 81.) Plaintiff also alleges Rudin and Accountant Defendants engaged in a pattern and practice of conduct of filing false information with the Internal Revenue Service (IRS), and paid Rudin excessive compensation. (Id. ¶ 38.) Specifically, Plaintiff contends that from 1999 to 2009 Accountant Defendants prepared TIP's federal and state tax returns, which "contained fraudulent and false information," "at the direction of defendant Edward Rudin, and without independent verification of the underlying data." (Id. ¶¶ 57-58.) The Complaint suggests that Accountant Defendants "paid Mr. Rudin excessive compensation in an effort to funnel money out of TIP." (Id. ¶38.) There is no supporting allegation demonstrating Accountant Defendants were employed by TIP with the authority to cause payments to be made by TIP. Similarly, the Complaint alleges that the fraudulent efforts of the Rudin Defendants and Accountant Defendants "were successful in preventing Mr. Baker from learning of the Enterprise from TIP's incorporation in October 1997 through in or about May 2010," but does not allege what actions each group of defendants took in this regard. (Id. ¶ 42.) Plaintiff also alleges "a professional relationship" between the Rudin Defendants and Accountant Defendants. (Id. ¶ 60.)
Plaintiff alleges the Rudin Defendants engaged in various conduct to carry out the fraudulent scheme. (Id. ¶ 3.) Plaintiff alleges Rudin received excessive and unwarranted salary and bonus payments between 2001 and 2009, and diverted TIP funds through a series of cash withdrawals from the Operating Account and cash deposits into the Payroll Account between July 2007 and November 2008. (Id. ¶ 41.) Plaintiff contends that the cash deposits were actually TIP's client payments; checks originally made payable to TIP were cashed against a TIP account, which Rudin later used to make a deposit into the Payroll Account. (Id. ¶¶ 66-70.) Plaintiff also alleges Rudin diverted and stole TIP funds by sending checks to defendants Alyse Rudin and Gloria Rudin, Rudin's wife and mother, respectively. (Id. ¶¶ 71-76.) Defendants Alyfunkids, My Gym Westfield, and My Gym Glen Rock (collectively, "My Gym Defendants") and Rudin Appraisals are owned and operated by Rudin. (Id. ¶ 2.) Plaintiff alleges Rudin used TIP's offices, equipment, systems and personnel to run My Gym Defendants and Rudin Appraisals, (id. ¶¶ 88-89,) and diverted and stole TIP funds to fund and operate My Gym Defendants and Rudin Appraisals, (id. ¶ 82). Other than Gloria Rudin, who lives in Del Ray Beach, Florida, all of the Rudin Defendants either live in or have their principal place of business at 19 Princess Drive, North Brunswick, New Jersey. (Id. ¶¶ 19-27.)
On October 22, 2010, Plaintiff filed a Complaint claiming: (1) civil RICO violation against all defendants; (2) civil RICO conspiracy against all defendants; (3) breach of fiduciary duty against Rudin; (4) malpractice against Accountant Defendants; (5) breach of fiduciary duty against Accountant Defendants; (6) aiding and abetting breach of fiduciary duty against Alyse Rudin, Gloria Rudin, My Gym Defendants, and Rudin Appraisals; (7) fraud against Rudin; (8) fraudulent concealment against Rudin and Accountant Defendants; (9) constructive trust against Rudin Defendants; (10) conversion against Rudin Defendants; (11) unjust enrichment against Rudin Defendants; and (12) accounting against Rudin, Accountant Defendants, My Gym Defendants, and Rudin Appraisals. Accountant Defendants and Rudin Defendants filed separate Rule 12(b)(6) motions to dismiss on January 26, 2011. Rudin Defendants also filed a motion for a preliminary hearing on January 26, 2011. Plaintiff filed a memorandum in opposition to the motions on March 28, 2011. ("Pl.'s Opp. Mem.") On April 29, 2011, Accountant Defendants and Rudin Defendants filed reply memorandum in support of their motions to dismiss. Oral argument was held on September 20, 2011.
On a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), the court must accept "all well-pleaded allegations in the complaint as true, drawing all reasonable inferences in the plaintiff's favor." Operating Local 649 Annuity Trust Fund v. Smith Barney Fund Mgmt. LLC, 595 F.3d 86, 91 (2d Cir. 2010). To survive a motion to dismiss, "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Applying this plausibility standard, a complaint must do more than offer "'naked assertions devoid of further factual enhancement,' and a court is not 'bound to accept as true a legal conclusion couched as a factual allegation.'" Iqbal, 129 S. Ct. at 1949-50 (quoting Twombly, 550 U.S. at 555, 557). See Vargas v. Choice Health Leasing, No. 09 Civ. 8264 (DLC), 2011 U.S. Dist. LEXIS 49310, at *5-6 (S.D.N.Y. May 9, 2011) (applying Iqbal and Twombly plausibility standard to civil RICO claim).
A motion to dismiss an action on statute of limitations grounds is treated as a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted. Gharty v. St. John's ...