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John Anthony Sgaliordich v. Lloyd's Asset Management

September 20, 2012


The opinion of the court was delivered by: Korman, J.:


On August 11, 2010, John Sgaliordich, an individual investor, filed a complaint alleging that various investment professionals made fraudulent misstatements to him or omitted material information about the value and expected performance of investments in silver and gold, and executed various unauthorized trades and transfers on his behalf. On February 8, 2011, I granted Lloyd's Asset Management's motion to dismiss because the complaint failed to allege a facially-plausible claim for either vicarious or successor liability against Lloyd's Asset Management, but I gave the plaintiff leave to replead within sixty days.

I dismissed the first amended complaint on March 26, 2012, for failure to allege the citizenship of defendants Jon Paul Vasta and Giovanni Loaiza. Plaintiff then filed a second amended complaint on March 26, 2012. The defendants remaining in the case are (1) three financial companies -- Lloyd's Asset Management ("Lloyd's"), Carlton Asset Management ("Carlton Mgmt."), and Liberty Bullion International, LLC ("Liberty Bullion"), (2) Jon Paul Vasta, who is alleged to be a former officer and director of Carlton Mgmt. and a current officer and director of Lloyd's, and (3) Giovanni Loaiza, an investment professional who is allegedly employed by Lloyd's. Plaintiff alleges six causes of action: (1) violation of New York General Business Law § 349; (2) violation of Florida's Securities and Investor Protection Act § 517.301; (3) breach of fiduciary duty; (4) fraudulent inducement; (5) conversion; and, (6) unjust enrichment. Defendants Lloyd's, Liberty Bullion, and Loaiza move to dismiss the second amended complaint pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim.


Brandon Brassert, an employee of Carlton Mgmt., and Jon Paul Vasta, the former principal of Carlton Mgmt., solicited plaintiff John Sgaliordich to invest with Carlton Mgmt. to trade precious metals, including silver. Second Am. Compl. ¶ 18. They represented that (1) Carlton Mgmt. was an experienced company with a strong management team, experienced traders -- such as Vasta and Brassert, and a successful track record of managing customer accounts, (2) silver was a safe investment with low volatility, (3) the investment recommendations would be made in accordance with the National Futures Association's ("NFA") Rules and Regulations and would be suitable for plaintiff considering his objectives, income and financial status, and (4) no transactions would be executed without plaintiff's prior authorization. Id.

Brassert also told plaintiff that Barclay's Bank would soon make a large purchase of silver that would drive up the price. Id. ¶ 22. Carlton Mgmt. and Vasta characterized the venture as a high profit, short term, safe investment with little or no risk. Id. ¶ 23. Relying on their representations, in March 2007, plaintiff funded a newly opened account with Carlton Mgmt. and Vasta for investment in physical precious metals, specifically silver. Id. ¶ 24. Plaintiff alleges, prior to his investment with them, Carlton Mgmt. and Vasta failed to disclose that (1) Vasta pled guilty to criminal charges in 2002, (2) Vasta was not licensed to purchase and/or sell commodities or commodities futures, and (3) Carlton Mgmt. was not properly registered with either the NFA or Florida to sell commodities. Id. ¶ 25.

Moreover, plaintiff alleges that Carlton Mgmt. and Vasta "made misrepresentations and omissions regarding business operations, the likelihood that a customer would realize large profits from purchasing commodities, the risks involved in trading commodities, the true nature of Plaintiff's investments with Carlton [Mgmt.] and Vasta, and the fees charged." Id. ¶ 26. Specifically, the defendants represented that commodities investments carried "little, to no risk, that certain trades were guaranteed to generate a profit," and that trades would be transacted only with plaintiff's prior authorization. Id. Without any further specification, plaintiff alleges that during telephone calls, Vasta and Brassert expanded on these misrepresentations in soliciting him to invest in precious metals. Id. ¶ 27. These "and other fraudulent and/or negligent misrepresentations" and omissions, which were "made with the knowledge of and/or at the direction of Vasta, as the former Principal of Carlton [Mgmt.]," id. ¶ 28, caused plaintiff to invest "$10,000 in silver in March 2007, and continue[] to invest in silver and other commodities with . . . Carlton [Mgmt.]," id. ¶ 29.

Brassert is no longer employed by Carlton Mgmt., but the complaint does not allege when his service was terminated. Id. ¶ 30. Around this time, Michael Comiskey, a commodities trader employed by Carlton Mgmt., made further material misrepresentations to "induce Plaintiff to invest additional funds in precious metals." Id. ¶ 31. Comiskey used the "'sales pitch' that silver was a safe investment," safer than the stock market, id. ¶¶ 32-33, and that plaintiff would "'never have an equity call,'" id. ¶ 32. Moreover, he advised that plaintiff's "leverage would 'never exceed two and a half times invested capital.'" Id. ¶ 33. In essence, plaintiff alleges Comiskey "compounded the risk" of the investment "by recommending the use of credit to purchase silver (which is inherently volatile)." Id. Comiskey further failed to disclose the increased risk plaintiff "was subjected to by using credit" and "knowingly misrepresented that" purchasing "on credit would never result in a loss of money, in addition to the Plaintiff's initial investment." Id. Relying on Comiskey's fraudulent misrepresentations, which Comiskey made "in the course and scope of his duties while employed at Carlton [Mgmt.]," plaintiff "continued to heavily invest in silver" during Comiskey's employment at Carlton Mgmt. Id. ¶ 34.

During March and April 2007, plaintiff invested $250,000 in silver with Carlton Mgmt., and paid $123,500 of that amount in commission fees, which he alleges Brassert, Comiskey and Vasta did not disclose to him prior to his investment with the company. Id. at ¶ 35.Plaintiff asserts that these commission fees, which are 49.4% of his $250,000 investment demonstrate that the defendants traded excessively, "[c]hurning" his account, "in order to generate income for the broker[s] and the firm." Id. The complaint fails to allege (1) how these commissions were billed, (2) how they were paid, and (3) what, if anything, was the stated reason for them (e.g., whether they related to specific investments).

Around December 2007, Carlton Mgmt. ceased doing business, id. ¶ 37, and plaintiff's account was closed with only $75,000 of his original $250,000 investment remaining. Id. ¶ 38. Vasta, as the company's principal, created Lloyd's, "another company designed as a boiler room." Id. ¶ 37.*fn1 Also around this time, Comiskey moved to Lloyd's, employed as a commodities broker. Id. ¶ 36. To retain plaintiff as a client, Comiskey, acting within the course and scope of his employment with Lloyd's, advised plaintiff that (1) Lloyd's would not charge any commissions until he owned 83,000 ounces of physical silver, and (2) trading in his account would occur only with his "express consent and authorization." Id. ¶ 39. The complaint fails to specify, if and when, plaintiff's account at Lloyd's acquired 83,000 ounces of silver. At some point, although it is not clear exactly when,*fn2 Comiskey notified the plaintiff that Giovanni Loaiza, another commodities broker employed by Lloyd's, would handle his account. Id. ¶¶ 41-42.

Plaintiff alleges that Comiskey and Loaiza made several misrepresentations. First, contrary to Comiskey's representation, trading occurred in plaintiff's account at Lloyd's without his "express consent and authorization." Id. ¶ 40. Indeed, Lloyd's, through its commodities brokers Comiskey and Loaiza, who were acting on the company's behalf within the course and scope of their duties, "conducted many trades in Plaintiff's account without his consent or authorization, including purchases of platinum." Id. Several paragraphs later, however, the complaint alleges that plaintiff had authorized at least some of Loaiza's trades in his account. See id. ¶ 48 ("Loaiza, acting in the course and scope of his employment . . ., purchased in excess of the amounts Plaintiff authorized him to purchase in commodities and continued to leverage Plaintiff's investment without authorization."). The complaint does not provide any further details on which trades plaintiff had authorized and which were unauthorized.

Loaiza had also represented that "he was licensed to trade any and all securities and that with his investments in silver, plaintiff would 'never have an equity call.'" Id. ¶ 42. Loaiza, on behalf of Lloyd's, further represented to plaintiff that silver is a "suitable," "safe" investment, which is "safer than the stock market." Id. ¶ 43. Moreover, plaintiff "would double his investment before the end of 2008 and that he should diversify his investments by purchasing gold." Id. Plaintiff alleges that "Loaiza and [Lloyd's] knew and/or should have known that these representations were false when made and were made for the purpose of inducing Plaintiff, an unsophisticated investor in the commodities industry, to rely upon these statements . . . to his detriment." Id. ¶ 44.

Relying on these representations, on March 4, 2008, plaintiff invested $300,000 in physical silver, with Lloyd's through Loaiza, and purchased an unspecified amount of physical gold. Id. ¶ 45. The complaint alleges that although Loaiza had told plaintiff "he would not pay [commissions] if he became a client of [Lloyd's]," plaintiff paid commissions on both the invested and leverage funds. Id. ¶ 46. Plaintiff was never informed of commissions prior to investing his capital with Loaiza and Lloyd's. Id. Again, this allegation contradicts (1) the earlier allegation that Comiskey told plaintiff he would be charged fees after he owned 83,000 ounces of silver, id. ¶ 39, and (2) the Customer Account Documentation and Risk Factors ("Account Agreement") the plaintiff executed on January 2, 2008 when he became a Lloyd's customer,*fn3 which explicitly discloses that a management fee of fifteen percent would be charged for the services provided, Primps Dec. Ex. A, at 3. It is also inconsistent with regard to who told the plaintiff he would not pay commissions and when this statement was made to him. The complaint alleges that Loaiza became plaintiff's commodities broker at Lloyd's sometime after Comiskey had induced plaintiff to invest with Lloyd's. See id. ¶¶ 39, 41; cf. id. ¶ 46 and id. ¶ 39 (alleging Comiskey had informed plaintiff he would not be charged commissions until he owned 83,000 ounces of silver).

On June 27, 2008, after being assaulted, plaintiff went into a coma and was hospitalized. Id. ¶ 50. The plaintiff alleges that, during his hospitalization and coma, Loaiza conducted a series of unidentified unauthorized trades in his account. Id. ¶ 51. As I noted in my February 2011 Order dismissing the original complaint, plaintiff fails to allege what account was affected by the allegedly unauthorized trading and whether Lloyd's had any responsibility for that account. On July 30, 2008, plaintiff's account with Lloyd's "was abruptly closed without" his permission, and plaintiff "was issued a check in the amount of $77,587.16 -- a sharp decrease from the $300,000 investment Plaintiff made through Loaiza and [Lloyd's]." Id. ¶ 52. The complaint does not allege that the loss in value was due to Loaiza's unauthorized trading, some form of fraud, additional commissions, fees, or interest, or a decline in the silver or gold markets.

Even after Loaiza's unauthorized trading and the abrupt and unauthorized closure of his account with Lloyd's, plaintiff subsequently invested another $67,000 with Loaiza because Loaiza told him "that he would recover his monies lost while a client at [Lloyd's]." Id. ¶ 53. The account opened for that investment was apparently also closed by Loaiza sometime later. Id. ¶ 55. The complaint does not clearly set forth the events that followed. Apparently Loaiza opened yet another account for plaintiff, under "a new investment firm with the name Liberty B[u]llion International." Id. Loaiza introduced the plaintiff to Victor Morgan (whose role and business affiliation are left unspecified in the complaint) and represented Morgan would help recover plaintiff's money. Id. ¶ 54. Loaiza and Morgan "became inaccessible" after some investment was made with funds in plaintiff's account. Id. ¶¶ 53, 56. At some unspecified time, plaintiff withdrew approximately $19,000 of his $67,000 investment from his account with Liberty Bullion. Id. ¶ 58. The complaint does not allege whether the plaintiff could have withdrawn the entire account balance at that time. Loaiza, who is alleged to still be employed by Lloyd's as a commodities broker, is alleged to control the remaining $48,000 of plaintiff's original investment with Liberty Bullion. Id. ¶ 59. This lawsuit followed.


A.Standard of Review

In considering the motions to dismiss, I must accept "all well-pleaded allegations in the complaint as true," and draw "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). I may also consider "documents attached to the complaint as exhibits, or incorporated by reference, as well as any documents that are integral to, or explicitly referenced in, the pleading. If a plaintiff's allegations are contradicted by such a document, those allegations are insufficient to defeat" the motions to dismiss. Matusovsky v. Merrill Lynch, 186 F. Supp. 2d 397, 400 (S.D.N.Y. 2002) (internal citations omitted).

"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. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal citations and quotation marks omitted). Although the plausibility standard is not akin to a "probability requirement," it requires "more than a sheer possibility that the defendant has acted unlawfully." Id. Thus, where the facts alleged "are merely consistent with a defendant's liability, [the complaint] stops short of the line between possibility and plausibility of entitlement to relief." Id. (internal quotation marks omitted). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements," are insufficient to "unlock the doors of discovery for a plaintiff armed with nothing more than conclusions." Id. at 678-79.

B. Rule 9(b)

When "alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. P. 9(b). Rule 9(b) "requires that the plaintiff (1) detail the statements (or omissions) that the plaintiff contends are fraudulent, (2) identify the speaker, (3) state where and when the statements (or omissions) were made, and (4) explain why the statements (or omissions) are fraudulent." Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co., 375 F.3d 168, 187 (2d Cir. 2004) (internal quotation marks omitted).

Rule 9(b)'s heightened pleading standard applicable to fraud claims applies to plaintiff's claims under (1) Count Three (Breach of Fiduciary Duty), Count Five (Conversion), and Count Six (Unjust Enrichment), see Silverman Partners, L.P. v. First Bank, 687 F. Supp. 2d 269, 288 (E.D.N.Y. 2010) ("[B]reach of fiduciary duty, conversion, and unjust enrichment must be pled with specificity when the underlying acts are allegedly fraudulent."), (2) Count Four (Common Law Fraud), see Icebox-Scoops v. Finanz St. Honore, B.V., 676 F. Supp. 2d 100, 110 (E.D.N.Y. 2009) ("Rule 9(b) applies to all common law fraud claims, including claims under state law."), and (3) Count Two (Violation of Florida's Securities and Investor Protection Act ("SIPA"), Chapter 517), see Arnold v. McFall, 839 F. Supp. 2d 1281, 1286 (S.D. Fla. 2011) (holding that plaintiff must satisfy Rule 9(b)'s heightened pleading requirement to state a claim upon which relief can be granted under SIPA § 301).

C.Choice of Law

Lloyd's argues that, under the Account Agreement's choice of law provision, Counts Two through Six of the complaint are governed by the substantive law of the State of Florida. Primps Dec. Ex. A, at 4. Specifically, the Account Agreement provides that the "Account and the activities contemplated hereunder shall be governed by the substantive and procedural laws of Palm Beach County, the State of Florida without respect to Florida conflict of law rules. . . ." Primps Dec. Ex. A, at 4. Plaintiff maintains, however, that Lloyd's waived its right to enforce the choice of law provision because it relied on and cited only New York law on its motion to dismiss the original complaint. Plaintiff does not cite any case for this proposition. And, I see no reason of policy to hold that Lloyds is precluded from raising the choice-of-law clause in support of its motion to dismiss the Amended Complaint. On the contrary, because plaintiff relies almost entirely on Florida case law, it is he who has waived any claim to reliance on New York law, to the extent there is a conflict between New York and Florida law on the alleged claims. Cargill, Inc. v. Charles Kowsky Res., Inc., 949 F.2d 51, 55 (2d Cir. 1991) (noting that the parties had "based their briefs and arguments in . . . the district court . . . on New York law," and therefore, the court would "acquiesce in the parties' expectation and . . . apply New York law"). Moreover, the only cause of action that would appear to ...

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