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Lewis Family Group Fund LP v. JS Barkats PLLC

United States District Court, S.D. New York

January 18, 2018

Lewis Family Group Fund LP, et al, Plaintiffs,
v.
JS Barkats PLLC, et al, Defendants.

          MEMORANDUM OPINION & ORDER

          ALISON J. NATHAN, District Judge:

         Now before the Court is the motion of Defendant JPMorgan Chase Bank, N.A. ("Chase" or "Defendant") to dismiss the claims asserted against it in the Second Amended Complaint.

         As detailed below, the Court GRANTS Defendant Chase's motion.

         I. Background

         A. Overview of Allegations in the SAC

          This action primarily concerns an alleged RICO conspiracy principally perpetrated by Defendants Sunny J. Barkats (a/k/a Sanny Barkats) and his law firm, JSBarkats PLLC, (together, the "Barkats Defendants"), against Plaintiffs Lewis Family Group Fund LP (the "Fund, " f/k/a Lewis Family Investments Fund LP), LF Fund GP LLC ("LF GP"), and Kelly Ann Lewis ("Lewis, " collectively, the "Plaintiffs"), a family investment fund operated and managed by Lewis. See Second Amended Complaint ("SAC"), Dkt. No. 71, ¶¶ 1-2, 14-19. Plaintiffs allege that the Barkats Defendants used various "schemes and artifices" to defraud Plaintiffs of over $100, 000 of its investment funds, including by fraudulently inducing Plaintiffs to sign irregular contractual provisions inserted into complex agreements through false representations and pretenses. SAC ¶¶ 2-4. Plaintiffs plead twelve counts against the Barkats Defendants, including RICO, breach of contract, breach of fiduciary duty, conversion, constructive trust, fraudulent inducement, and other common law tort claims. Plaintiffs also seek to enjoin the Barkats Defendants from their retention and use of the Fund's assets and from continuing any business or legal activities in the name of the Fund without Lewis's authorization. SAC ¶ 5. Plaintiffs allege additional conduct and plead additional claims against the Barkats Defendants in their 113-page SAC that are not described here, and the Court only summarizes what is most pertinent to the present motion.

         In addition to Plaintiffs claims against the Barkats Defendants, they also plead three causes of action against Chase. To further the Barkats Defendants' alleged "schemes, " Barkats opened up a commercial bank account with Chase in the name of the Fund, into which $260, 000 was wire transferred by Lewis a few days later. SAC ¶ 69. Chase opened the account based on a one-page certificate of partnership filed by JSBarkats PLLC as "manager" of the LF GP. SAC ¶ 70. Lewis was not made a signatory on the account. SAC ¶ 73. Lewis authorized one loan of $14, 000 to her brother's company in August of 2015, and in October 2015 transferred the balance of the account totaling $111, 700 to a new Chase account she opened in California. SAC ¶ 75. However, after subtracting these amounts from the original $260, 000 transferred into the Barkats-controlled Chase account, Plaintiffs contend that roughly $145, 000 must be accounted for as monies disbursed or invested by the Barkats Defendants without authorization of the Plaintiffs. SAC ¶ 76.

         After Lewis transferred the balance in the Chase account to the other account in California, Barkats contacted Chase and claimed that he had sole management rights to the monies in the Fund account and that Lewis's transfer was unauthorized. SAC ¶ 109. Faced with "conflicting information and competing claims... with respect to a right to the Funds, " Chase froze the entire balance of $111, 700 and filed an interpleader action in November 2015 in the Superior Court of California, Los Angeles County - Central District (hereafter, the "California Court"), requesting that the court discharge Chase from all liability. SAC ¶¶ 110-11; Declaration of Tod V. Beebe ("Beebe Deck"), Dkt. No. 83, Ex. A.

         Plaintiffs plead three causes of actions against Chase. First, in Count XI, Plaintiffs charge that Chase is liable under provisions of Article 4 of the Uniform Commercial Code for failure to meet various obligations in allowing Barkats to open up the checking account bearing the name "Lewis Family Fund Investment, " and for allowing him to make withdrawals without requiring Lewis as an authorized signer. See SAC ¶¶ 274-93. Second, in Count XII, Plaintiffs allege that Chase engaged in tortious and/or bad faith conduct in freezing Lewis's funds and commencing an interpleader action. SAC ¶¶ 294-302. Third, in Count XV, Plaintiffs claim Chase committed negligent infliction of emotional distress and concomitant physical injury in its breach of the duty of cure owed to Lewis. SAC ¶¶ 313-16.

         B. Chase's Interpleader Action in California and Chase's Present Arguments

          On January 17, 2017, the California Court ruled that Chase's interpleader action was proper and discharged Chase from liability. See Beebe Deck, Ex. M (discharging Chase "from all liability on or arising out of the rights and obligations of the parties to this action with respect to the sum of $111, 700.00"). The California Court's order also "permanently enjoined and restrained" both the Plaintiffs and the Barkats Defendants from "instituting or prosecuting any further action against JPMorgan Chase Bank with regard to the sum of $111, 700.00 previously held by JPMorgan Chase Bank." Id. Plaintiffs in this matter then moved the California Court for reconsideration of its January 17 Order. See Beebe Deck, Ex. O. Upon reconsideration, the California Court affirmed its previous decision on March 17, 2017. See Beebe Deck, Ex. S. No. appeal was filed and the time to appeal has expired.

         Notwithstanding the pendency of the interpleader action, Plaintiffs sued Chase in this Court on July 1, 2016. Dkt. No. 1. On the basis of the California Court's disposition, Chase moves to dismiss Plaintiffs' present complaint against them on two procedural grounds. See Dkt. Nos. 79-84. First, Chase asserts that all three causes of action are barred by California's compulsory counterclaim rule, "which required Plaintiffs to assert their claims in a cross-complaint against Chase in the Interpleader Action." See Memorandum of Law in Support of JPMorgan Chase Bank, N.A.'s Motion to Dismiss the Second Amended Complaint ("Mem."), Dkt. 84, at 2, 13-14. Second, Chase argues that two of the three claims are barred by the doctrines of res judicata and collateral estoppel (or claim and issue preclusion, respectively) because of decisions made by the California Court. Id. at 9-13. Third, and finally, Chase argues in the alternative that all three claims should be dismissed for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Id. at 15-24.

         Since, as explained below, the Court dismisses all three claims against Chase on the basis of California's compulsory counterclaim rule, it declines to address the second and third arguments.

         II. ...


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