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Duval v. Albano

United States District Court, S.D. New York

July 18, 2017

LESLEY DUVAL, Plaintiff,
JOSEPH ALBANO, also known as J.D. Albano, DEBRA ALBANO, and AXIS SPORTS MEDIA, INC., Defendants.


          KATHERINE POLK FAILLA, United States District Judge

         After a deal to sell her business went awry, Plaintiff Lesley Duval brought this action against Joseph and Debra Albano (together, the “Albanos”) and a company they controlled, Axis Sports Media, Inc. (“AXIS, ” and with the Albanos, “Defendants”). Plaintiff advanced civil claims under 18 U.S.C. § 1962, the Racketeer Influenced and Corrupt Organizations Act (commonly known as “RICO”), as well as common-law claims for breach of contract, anticipatory breach of contract, fraud, unjust enrichment, and declaratory judgment. In brief, Plaintiff alleges that the Albanos operated a network of associated shell corporations (including AXIS) for the purpose of defrauding businesses and consumers alike, and that Plaintiff herself was defrauded into selling them The Manhattan Cocktail Classic (“MCC”), a business Plaintiff had founded.

         Defendants moved to dismiss the Complaint on January 23, 2017, and their motion was fully briefed as of March 24, 2017. For the reasons that follow, Defendants' motion is denied.


         A. Factual Background

         1. The Sale of MCC

         Plaintiff is the founder and former owner of Lesley Townsend LLC, doing business as MCC, an event production company that produced “high-end liquor and cocktail events, including its eponymous annual gala event” that was held in New York City every year from 2009 to 2014. (Compl. ¶ 16).

         In or about March of 2014, Joseph Albano approached Plaintiff “with a proposal to purchase MCC.” (Compl. ¶ 17). “Mr. Albano represented himself at the time as an experienced event production executive with an extensive history of buying and selling brands and companies.” (Id.).

         On September 9, 2014, Plaintiff entered into a purchase agreement (the “Purchase Agreement”) “with The Cocktail Classic LLC (‘Buyer LLC'), a shell company formed by the Albano Defendants for the sole purpose of purchasing MCC from [Plaintiff].” (Compl. ¶ 18). “Under the terms of the Purchase Agreement, the Buyer LLC agreed to purchase [Plaintiff's] entire membership interest in MCC for a total purchase price of $908, 000 (‘Purchase Price'), to be paid in quarterly installments of $37, 500 over a period of six years.” (Id. (citing Compl., Ex. A, §§ I-II)).

         AXIS was a New York corporation formed by Debra Albano in 2012. (Compl. ¶ 37 & Ex. G). According to Plaintiff, it was used by the Albanos to impart a patina of legitimacy to the transaction: “As part of the transaction to transfer ownership of MCC from [Plaintiff] to the Buyer LLC ..., [Joseph] Albano proposed that AXIS would guaranty payment of the Purchase Price to [Plaintiff].” (Id. at ¶ 19). “The Guaranty Agreement was, by its own terms, ‘an unconditional guaranty of payment.'” (Id. (citing Compl., Ex. B, ¶ 2)). It provided that “[t]o induce the Seller to enter into the Purchase Agreement, ” AXIS, the Guarantor, “absolutely, conditionally and irrevocably guarantee[d] to [Plaintiff, ] the Seller[, ] ... the due and punctual payment, observance, performance and discharge of” the Purchase Price. (Compl., Ex. B, ¶ 1). Of particular significance to the instant litigation, AXIS “represent[ed] and warrant[ed] that ... [it] ha[d] the financial capacity to pay and perform its obligations” under the agreement. (Id. at ¶ 6).

         Joseph Albano signed the Guaranty Agreement on behalf of AXIS as its President. (Compl. ¶ 21; see also id., Ex. B). He also “represented to [Plaintiff] that he intended to rely upon AXIS's event production experience to continue producing the MCC festival successfully ... in order to induce [Plaintiff] to enter into the MCC [sale transaction] and to gain control of the valuable MCC brand.” (Id. at ¶ 22).

         In reliance on these representations, Plaintiff “transferred all interest in MCC to the Buyer LLC” on September 9, 2014. (Compl. ¶ 23; see also Id. at ¶ 18). An initial payment of $45, 000 was paid with a check signed by Debra Albano “from a corporate entity named ‘WSOG LLC.'” (Id. at ¶ 23).[2] “On December 15, 2014, the Buyer LLC made a quarterly payment to [Plaintiff] in the amount of $37, 500, ” also using a check signed by Debra Albano. (Id.; see also Compl., Ex. C).

         After that, no further payments were made. To date, the Buyer LLC has not made any additional quarterly payment as required under the Purchase Agreement, and AXIS has “defaulted on its obligation under the Guaranty Agreement to guaranty payment by the Buyer LLC.” (Compl. ¶ 26). The MCC festival has not been produced since MCC was purchased. (Id. at ¶¶ 28, 31). Instead, Joseph Albano “has made repeated representations regarding attempts to re-sell the company to third-party buyers” (id. at ¶ 28), and “indicated on at least two occasions that he [did] not have the funds to satisfy his companies' obligations and ... intend[ed] to default on the future quarterly obligations” (id. at ¶ 30).

         2. The Albanos' Additional Alleged Misrepresentations

         a. AXIS

         According to Plaintiff, the failed MCC transaction was the proverbial tip of the iceberg of Defendants' fraudulent conduct: She alleges that “[b]eginning at least as early as 2013, and continuing through [the filing of the Complaint], the Albano Defendants have made numerous false statements on the AXIS website, ” including “misrepresentations about AXIS's size as an organization, office location, history of operations, clients roster, and events produced.” (Compl. ¶ 70). The AXIS website indicates that the company has been helping its clients “to achieve their objectives by using sports as a winning communication tool” for over fifteen years. (Id. at ¶ 32; see also id., Ex. D). Indeed, the website lists as AXIS's clients and partners Miller Lite, Citibank, Red Bull, the Pro Football Hall of Fame, Patrón Tequila, Tiffany & Co., Lowe's, and American Airlines. (Id. at ¶ 32; see also id., Ex. D). The website also indicates that AXIS has a “creative and production team of professionals” that includes “graphic designers, producers, technical product managers, script writers, videographers, video editors, video and audio engineers, lighting directors, creative directors, and set designers with ‘decades of knowledge and experience.'” (Id. at ¶ 32; see also id., Ex. E). And AXIS issued a September 3, 2014 press release announcing its production of a year-long Professional Boxing Tour, the first event of which was to be a prize fight at Mohegan Sun Arena in October 2014. (Id. at ¶ 33; see also id., Ex. F).

         Plaintiff contends that, in reality, “AXIS is shell company with no assets and ... no employees or clients.” (Compl. ¶ 33). The company could not have been in business for over fifteen years because “the entity was only created in 2012.” (Id.). The October 2014 prize fight at Mohegan Sun is not listed in the public professional records of the boxers alleged to have participated in it. (Id.). Indeed, AXIS “has not produced any events in its entire history as a company.” (Id. at ¶ 40). What is more,

although the AXIS website states that the company's corporate address is located on West 40th Street in New York, New York and also suggests that the company has offices in Atlanta and Los Angeles, AXIS's Certificate of Incorporation, the [New York State Department of State] website, and the ‘Notices' provision in the Guaranty Agreement all list the company's address at the residence of the Albano Defendants in Locust Valley, New York.

(Id. at ¶ 34).

         b. WSOG

         According to Plaintiff, the WSOG entity from the accounts of which the initial payment to Plaintiff was drawn is also mired in fraud. WSOG LLC was organized in Delaware on March 7, 2014. (Compl. ¶ 45). Another WSOG entity was organized in New York on March 2, 2016. (Id.; id., Ex. J). Its address for service of process is a Bayville, New York property owned by Debra Albano. (Id.; see also id., Ex. J, K).

         Plaintiff alleges that “since at least as early as 2014, and continuing through the present, the Albano Defendants have made numerous false representations on the WSOG Website about the current operations of WSOG, ” including “misrepresentations about WSOG's history of operations since the Albano Defendants took control of the WSOG Website and the WSOG brand.” (Compl. ¶ 70). For example: “The WSOG Website advertises that the company engages in online gambling activities as well as an annual live three-day golfing event in which finalists are eligible to win a $250, 000 grand prize.” (Id. at ¶ 43). A July 22, 2014 press release on the WSOG website announced “the creation of a partnership between WSOG and AXIS to launch a ‘contest for golfing bloggers, '” the winner of which “would receive a trip to the September 2014 World Series of Golf tournament weekend” at Mohegan Sun. (Id. at ¶ 46; see also id., Ex. H). The WSOG website in 2015 and 2016 has maintained different iterations of a membership signup that solicits the payment of a membership fee with no specified benefits of membership. (Id. at ¶¶ 46-47; see also id., Ex. H, L).

         Plaintiff alleges that neither the Mohegan Sun event nor “the series of subsequent WSOG events that the WSOG Website claims occurred throughout 2014 and 2015” ever took place. (Compl. ¶ 46). And the membership signup is simply “a scheme designed to trick unsuspecting golf and poker enthusiasts into providing credit card information to WSOG and paying a ‘membership fee' to WSOG for non-existent goods and services.” (Id. at ¶ 48).

         c. Other Albano-Related Entities

         Plaintiff alleges that her claims of fraud are bolstered by the Albanos' connection “to approximately one dozen inactive companies in New York and Nevada, ” all of which “were opened and either closed or abandoned since 2001.” (Compl. ¶ 49). “There is little evidence that any of these companies ever conducted any actual business.” (Id.).

         As a specific example, Plaintiff recites that, in 2014, Joseph Albano and one of the Albanos' Nevada entities, Envy Digital Entertainment Inc. (“Envy”), were sued in New Jersey Superior Court by the National Football League Alumni Association (the “NFLAA”), which alleged that it had given Envy and Joseph Albano hotel rooms and Super Bowl tickets in exchange for the production of an NFLAA awards show that Envy and Joseph Albano ultimately revealed themselves as unable to produce. (Compl. ¶ 50). The NFLAA also alleged that Envy and Joseph Albano dramatically misrepresented the progress of that production when asked about it. (Id.).

         B. Procedural Background

         Plaintiff filed her Complaint on October 6, 2016, raising civil RICO claims against the Albanos and common-law claims against all Defendants. (Dkt. #1). On November 16, 2016, Defendants requested that the Court schedule a pre-motion conference to discuss Defendants' contemplated motion to dismiss. (Dkt. #23). That conference was held on December 7, 2016. (Dkt. #28). Afterward, the Court set a briefing schedule for Defendants' motion. (Dkt. #27).

         Defendants filed their motion on January 23, 2017. (Dkt. #33-34). Plaintiff filed her opposition to Defendants' motion on February 24, 2017 (Dkt. #35), and Defendants filed their reply on March 24, 2017 (Dkt. #37).

         On June 12, 2017, Plaintiff filed a letter requesting that the Court take judicial notice of a case that she alleges “reveals a new piece of the Albano Defendants' fraudulent scheme.” (Dkt. #38). Defendants opposed Plaintiff's request on June 13, 2017. (Dkt. #39).


         A. Applicable Law

         Defendants' principal argument is that Plaintiff has overstated her case - that she has attempted, through artful pleading, to transform a run-of-the-mill business dispute into a racketeering enterprise, and thereby obtain treble damages and attorney's fees. To contextualize its explanation of why this argument fails, the Court will outline in this section the complexity of the RICO statute, demonstrating both the statute's nuances and their interplay with the pleading requirements of the Federal Rules of Civil Procedure.

         1. Civil RICO

         a. Generally

         Plaintiff asserts violations of RICO's third and fourth substantive prohibitions against “racketeering activity.” (See Compl. ¶¶ 81-93). The third prohibition, contained in Section 1962(c), makes it “unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity.” 18 U.S.C. § 1962(c). A plaintiff bringing a civil RICO claim under Section 1962(c) must allege that (i) the defendant has violated the substantive RICO statute; and (ii) the plaintiff was injured in her business or property by reason of a violation of Section 1962. See, e.g., Spool v. World Child Int'l Adoption Agency, 520 F.3d 178, 183 (2d Cir. 2008). To make out a substantive RICO violation, in turn, a plaintiff must allege the (i) conduct (ii) of an enterprise (iii) through a pattern (iv) of racketeering activity. See, e.g., Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 496 (1985); Cruz v. ...

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