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Charney v. Zimbalist

United States District Court, S.D. New York

July 30, 2015

SCOTT CHARNEY, et al., Plaintiffs,
CARLA ZIMBALIST, et al., Defendants.



Plaintiff Scott Charney and 22 others ("Plaintiffs") filed suit against defendants Jennifer Wilkov ("Defendant") and two others for securities fraud and related torts. The two other defendants either have defaulted or settled and been dismissed. Plaintiffs and Defendant have filed cross-motions for summary judgment.

USMJ Gabriel W. Gorenstein issued a Report and Recommendation on September 29, 2014, recommending that summary judgment be granted to Plaintiffs on the issues of: (i) the materiality of the false statements made by Defendant, and (ii) the reasonability of Plaintiffs' reliance on Defendant's statements, and denied on whether or not the Plaintiffs actually relied. Judge Gorenstein recommended that Defendant's motion for summary judgment be denied.

Plaintiffs and Defendant have raised timely objections. 28 U.S.C. § 636(b)(l); Fed.R.Civ.P. 72(b). Upon full de nova review, I approve Judge Gorenstein's Report and Recommendation, with one exception: I hold that each of the twenty three plaintiffs proved that they relied on Defendant's representations, and thus there are no triable issues of material fact. Accordingly, I grant Plaintiffs' motion, and I deny Defendant's motion. I grant summary judgment to Plaintiffs against Defendant, and remand to Judge Gorenstein to find damages.


Plaintiffs' second amended complaint contains eight counts, spread over 469 paragraphs of allegations. In eight years, the proceedings in this Court are covered in 323 ECF entries. Defendant Wilkov is the only remaining defendant, the other two defendants have defaulted.

Judge Gorenstein's report and recommendation summarizes the allegations of the second amended complaint and the relevant facts. I need not recount them, for they are not challenged. Essentially, each of the Plaintiffs, advised by Defendant, were induced by her to invest in a residential real estate scheme in and around Los Angeles. In a criminal plea to 24 counts of fraud in January, 2008, Defendant allocuted under oath that she made the following false representations to each Plaintiff, knowing that each was false, for the purpose of inducing each Plaintiff to invest in the properties a sum of money ranging from $16, 667 to $75, 000: (1) that she "had invested with Zimbalist and Chanla in the past and had been successful with them"[1]; (2) that she "would monitor the properties [her]self'; and (3) that she had "done [her] due diligence on Zimbalist and Chanla and that they were a solid and reliable team." (Dkt. No. 111 Ex. 17 at 12-13.)

The details are discussed in Judge Gorenstein's opinion. The scheme itself was a fraud. Defendant made a number of alleged representations, but the ones to which she admitted are sufficient to prove the motion, and I need not discuss the others. I held, in my Order dated January 24, 2011, that there is no material dispute that Defendant made these misrepresentations in connection with the securities, knowing that they were false when made and for the purpose of inducing Plaintiffs to invest money through her. (Dkt. No. 126.) My discussion below concerns Defendant's other objections.


A District Court judge may assign summary judgment motions to a Magistrate Judge to conduct proceedings and submit a recommended disposition and proposed findings of fact. 28 U.S.C. § 636(b)(l)(B); Fed.R.Civ.P. 72(b). In reviewing the Report and Recommendation, I review de novo any part of the Magistrate Judge's disposition that has been properly objected to. 28 U.S.C. § 636(b)(l)(B); Fed.R.Civ.P. 72(b).

i. Summary Judgment

Summary judgment is appropriate when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). There is a genuine issue of material fact if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986). In determining whether there is genuine issue of material fact, "the evidence of the non-movant is to be believed, '' and the court is to draw "all justifiable inferences" in favor of the non-movant. Id. at 255 (citing Adickes v. S.H Kress & Co., 398 U.S. 144, 158-59 (1970)). Once the moving party shows that there is no genuine issue of material fact, "the nonmoving party must come forward with specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting Fed.R.Civ.P. 56(e)). "Where it is clear that no rational finder of fact could find in favor of the nonmoving party because the evidence to support its case is so slight, summary judgment should be granted.'" F.D.I.C v. Great Am. Ins. Co., 607 F.3d 288, 292 (2d Cir. 2010) (internal citation omitted).

ii. Securities Exchange Act § 10(b) and S.E.C. Rule 10b-5

Section 10(b) of the Securities Exchange Act provides that it shall be unlawful for any person "[t]o use or employ, in connection with the purchase or sale of any security... any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [S.E.C.] may prescribe as necessary or appropriate in the public interest or for the protection of investors." 15 U.S.C. § 78j. Pursuant to their authority under Section lO(b), the S.E.C. promulgated rule 10b-5, stating that it is unlawful for any person "(a) [t]o employ any device, scheme, or artifice to defraud, (b) [t]o make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, or (c) [t]o engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security." 17 C.F.R. § 240.10b-5. The Supreme Court has "recognized an implied private cause of action to enforce the [S.E.C. rule] and its implementing regulation." Halliburton Co. v. Erica P. John Fund, Inc., 134 S.Ct. 2398, 2407 (2014) (internal citations omitted). Section 10(b) "bars conduct ...

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