Citations
- 346 F. Supp. 3d 432
Full opinion text
KENNETH M. KARAS, UNITED STATES DISTRICT JUDGE
The Board of Managers of Trump Tower at City Center Condominium, by its President, Alan Neiditch, (the "Board" or "Plaintiff") filed the instant Action against Frank Palazzolo ("Mr. Palazzolo"); Mary Palazzolo ("Palazzolo"); Stephen Tobia ("Tobia"); Stephen Reitano ("Reitano"); Joseph Santangelo ("Santangelo"); Lorraine DiStefano ("DiStefano"); Gina Thomas ("Thomas"); F & M Funding LLC ("F & M"); RLA Holdings, LLC ("RLA"); Premium Staffing LLC ("Premium Staffing"); Premium Parking, LLC ("Premium Parking"); Antoinette City Center, LLC ("ACC"); B.A.B. Group I, LLC ("B.A.B. I"); B.A.B. Group II, LLC ("B.A.B. II"); First Resource Funding LLC ("First Resource"); Ridgeview Holdings LLC ("Ridgeview LLC"); and Reda, Romano & Company, LLP ("Reda Romano") (collectively, "Defendants"), alleging one count of a violation of the Racketeer Influence and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(a), by Mr. Palazzolo, one count of a violation of RICO, 18 U.S.C. § 1962(b), by Mr. Palazzolo, one count of a violation of RICO, 18 U.S.C. § 1962(c) by all Defendants except Reda Romano, one count of conspiracy to violate RICO, 18 U.S.C. § 1962(d), by all Defendants except Reda Romano, as well as state law claims against various Defendants for conversion, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, fraud, fraudulent concealment by a fiduciary, unjust enrichment, money had and received, professional malpractice, gross negligence, and breach of contract. (See Am. Compl. (Dkt. No. 120).)
Before the Court are three Motions. First, there are two Motions To Dismiss the Amended Complaint pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6) -one on behalf of Tobia, Reitano, Santangelo, DiStefano, Thomas, RLA, Premium Staffing, Premium Parking, and First Resource (collectively "Tobia Defendants"), (see Dkt. No. 138), and the other on behalf of ACC, (see Dkt. No. 144). In addition, Plaintiff has filed a Motion To Dismiss the counterclaims asserted by Mr. Palazzolo, and to strike the affirmative defenses asserted by Mr. Palazzolo, Palazzolo, F & M, B.A.B. I, B.A.B. II, and Ridgeview LLC, (collectively "Palazzolo Defendants"). (See Dkt. No. 140.)
For the following reasons, the Tobia Defendants' Motion and ACC's Motion are both denied, and Plaintiff's Motion is granted in part and denied in part.
I. Background
A. Parties
This Action involves a large number of parties with various roles in the unlawful scheme alleged by Plaintiff. For clarity, the Court provides a summary of the Parties and their respective roles in the alleged scheme.
Plaintiff Board is an unincorporated association and the legal entity responsible for the control and operation of all common areas and public spaces of the Trump Tower at City Center Condominium at White Plains (the "Condominium"). (Am. Compl. ¶ 10.) The Board is comprised of seven members and has governed the Condominium since its opening in 2005. (Id. ¶ 2.)
Mr. Palazzolo served as Treasurer of the Condominium from 2007 until his removal by the Board in 2015. (Id. ¶ 11.) Mr. Palazzolo currently resides in the Condominium and remains a member of the Board as the nominated representative of the commercial spaces in the Condominium, including the commercial space owned by ACC. (Id. ) Mr. Palazzolo is a real estate investor, and owns a commercial building at 800 Central Park Avenue in Scarsdale, New York known as "Palazzolo Plaza," an address used by Defendants F & M, RLA, First Resource, Premium Staffing, Premium Parking, ACC, and Ridgeview LLC. (Id. ) Mr. Palazzolo is alleged to have either controlled or have been a member or managing member of a variety of businesses, including F & M, RLA, Premium Staffing, Premium Parking, ACC, Ridgeview LLC, B.A.B. I, and B.A.B. II. (Id. ) Mr. Palazzolo is married to Palazzolo, who herself controlled or was otherwise a member of F &
M and Ridgeview LLC. (Id. ¶ 12.) Defendant Thomas was an employee of Mr. Palazzolo and Palazzolo at F & M. (Id. ¶ 17.)
Mr. Palazzolo's long-time business associate Tobia is also alleged to have either controlled or have been a member or managing member of RLA, ACC, First Resource, and Ridgeview LLC. (Id. ¶ 13.) Tobia, a real estate investor and businessman, served as a member of the Board from October 2006 through his ouster in 2015, including a term as Vice President of the Board from June 2011 through December 2015. (Id. ) Together, Mr. Palazzolo and Tobia are alleged to have either owned or controlled ACC, a limited liability company that owns one commercial unit in the building alongside RLA, another limited liability company which itself owns two commercial units. (Id. ¶ 177.)
Reitano was also a member of the Board, serving from April 2006 through February 2013. (Id. ¶ 14.) Reitano is alleged to have controlled and/or been a member or managing member of Ridgeview LLC, along with Mr. Palazzolo and Tobia. (Id. )
Santangelo is the final member of the Ridgeview LLC, and also "controlled and/or was a member or managing member of" Premium Staffing and Premium Parking. (Id. ¶ 15.)
The Ridgeview LLC was created by Mr. Palazzolo, Tobia, Reitano, and Santangelo to manage an investment in a real estate project, Ridgeview, in Elmsford, New York. (Id. ¶ 64.) Ridgeview LLC received financing through F & M, which itself used funds earmarked for Tobia's company, RLA, on its own balance sheets. (Id. ¶¶ 63, 65.)
Mr. Palazzolo was also involved with Premium Staffing and Premium Parking, of which Santangelo and DiStefano were controlling partners and/or members or managing members. (Id. ¶¶ 11, 15-16.) Premium Staffing was created in December 2007 by Santangelo and DiStefano to manage the Condominium's Garage finances and ensure that the valet parking provider, Supreme Parking, Inc. ("Supreme"), was paid its monthly service fee from 2008 onward. (Id. ¶¶ 159-60.) Premium Parking, also created by Santangelo and DiStefano, came into the picture in 2014, where it took over for Supreme as the valet service provider at the Condominium. (Id. ¶ 169.)
B. Amended Complaint Factual Background
The following facts are drawn from Plaintiff's Amended Complaint and are taken as true for the purpose of resolving Defendants' respective Motions.
The Condominium has 215 units, all but three of which are residential. (Am. Compl. ¶ 30.) In 2005, almost immediately after opening, the Condominium encountered financial difficulties. (Id. ) Beginning in 2007, Mr. Palazzolo, a resident of the Condominium, became the Treasurer of the Condominium and negotiated payments from the Condominium's developer, Louis Cappelli ("Cappelli"), to boost the Condominium's reserve account, while also engineering the Condominium's purchase of the garage and recreation deck from Cappelli. (Id. ¶ 31.) For these actions, among others, Mr. Palazzolo was credited for righting the Condominium's financial ship. (Id. )
Mr. Palazzolo used these past successes to dominate all aspects of the Board. Outside of a pre-existing business relationship with fellow Board member Tobia, Mr. Palazzolo began to enter into real estate investments with Reitano, also a Board member, and loaned substantial sums of money to two other Board members, John Durante and Fred Mastroianni. (Id. ¶ 32.) During this early period of Mr. Palazzolo's tenure, he also entered into an agreement with the Trump Corporation, which was then acting as the Condominium's managing agent. (Id. ¶ 33.) In exchange for a $100,000 annual fee, Mr. Palazzolo agreed to manage the Condominium's Reserve Account (the "Reserve Account"). (Id. ) It is Mr. Palazzolo's management of the reserve account, in addition to his later involvement with Premium Staffing, Premium Parking, and ACC, that spurred this Action.
1. Mr. Palazzolo's Use of the Reserve Accounts
a. The Complex Web of Bank Accounts
Prior to Mr. Palazzolo's tenure as Treasurer of the Condominium, the Reserve Account was maintained together with the operating account in a single account managed by the Trump Corporation. (Id. ¶ 42.) Mr. Palazzolo quickly changed this practice, opening and closing seven different accounts in the Condominium's name-but under his direct control-at four different financial institutions between 2007 and 2015. (Id. ¶ 43.) These accounts are alleged to have been critical to facilitating the actions of the alleged "Palazzolo Enterprise," as it became increasingly difficult to identify how much money the Condominium held in its Reserve Account, while allowing Mr. Palazzolo to transfer funds to and from those accounts without detection. (Id. ¶¶ 43-44.) Indeed, during Mr. Palazzolo's time as Treasurer, the Board only expressly authorized five transfers from the Reserve Account, but there appear to be hundreds of withdrawals during that period. (Id. ¶ 45.)
First, Mr. Palazzolo opened an account at Key Bank in June 2008 ("Key 158 Account"). (Id. ¶ 46.) During the two years that account was open, Mr. Palazzolo directed the transfer of $550,000 to F & M from the Key 158 Account without Board authorization. (Id. ) Mr. Palazzolo then opened an account at Hudson Valley Bank in June 2010 ("Hudson 9741 Account"), which was funded by a $400,000 transfer from the Key 158 Account. (Id. ¶ 47.) When the Key 158 Account was closed in September 2010, the balance was transferred to an account set up by Mr. Palazzolo at JP Morgan Chase & Co. ("Chase 7595 Account"). (Id. ¶ 46.) Similarly, when Mr. Palazzolo closed the Hudson 9741 Account in December 2010, the balance was transferred to a new account at JP Morgan Chase & Co. ("Chase 7742 Account"). (Id. ¶ 47.) In September 2012, the Chase 7595 Account was closed, with the balance transferred into the Chase 7742 Account. (Id. ¶ 48.) Then, in June 2014, Mr. Palazzolo opened a new account at Hudson Valley Bank ("Hudson 3641 Account") with a $500,000 transfer from the Chase 7742 Account. (Id. ¶ 50.) The Hudson 3641 Account was then closed in July 2015, with the balance transferred to a new account at Popular Community Bank ("Popular 5767 Account"). (Id. ) In between the opening of the Hudson 3641 Account and the Popular 5767 Account, Mr. Palazzolo opened a third account at JP Morgan Chase & Co ("Chase 9221 Account"). (Id. ¶ 51.) The Chase 9221 Account was closed in July 2015 as well, with the balance flowing to the still-open Popular 5767 Account. (Id. ¶ 52.)
b. Transfers to and from the Reserve Account
In April 2010, Mr. Palazzolo approached the Board with a business opportunity: the Condominium could loan $400,000 to RLA at an interest rate of six percent per annum. (Id. ¶ 56.) At the time, Mr. Palazzolo did not disclose to the Board that RLA was owned by fellow Board member Tobia, nor did he disclose that RLA's business address was at Palazzolo Plaza. (Id. ¶¶ 56-57.) Mr. Palazzolo also agreed to personally guaranty the repayment of the funds from RLA. (Id. ¶ 58.)
Ultimately, the Board approved the loan to RLA, with Mr. Palazzolo-and not Tobia-recusing himself from the vote. (Id. ¶¶ 59, 61.) However, unbeknownst to the Board and the Condominium, the money was actually being loaned from the Condominium's reserve funds to F & M, which was owned by Mr. Palazzolo and Palazzolo. (Id. ¶¶ 60-62.) On April 13, 2010, Mr. Palazzolo transferred $400,000 from the Key 158 Account to F & M, which F & M used to qualify for financing in connection with the Ridgeview development managed by Ridgeview LLC. (Id. ¶¶ 62-63.)
Soon after the transfer was consummated, the minutes of the Board meeting at which the loan to RLA was approved were made available to all unit owners in the Condominium. (Id. ¶ 66.) The owners were displeased with the use of Condominium reserve funds to an outside business, RLA, and demanded restitution of the funds. (Id. ¶ 67.) Mr. Palazzolo agreed to return the funds, which came via a transfer of $404,117 from F & M into the Key 158 Account. (Id. ¶ 68.)
In response to the undoing of the April 2010 RLA loan, Mr. Palazzolo decided to open three JP Morgan Chase & Co. accounts for the Condominium's reserve funds (the Chase 7742, 9221, and 7595 Accounts) that he could then link to his personal bank accounts. (Id. ¶ 72.) This allowed Mr. Palazzolo to alter the Condominium accounts to make it appear as if there was more money in the Reserve Account than there actually was, and also allowed Mr. Palazzolo to quickly transfer funds between the Condominium's accounts into his own accounts without any authorization from the Board. (Id. ¶ 73.)
Indeed, in December 2010, Mr. Palazzolo began this pattern of unauthorized transfers between the Condominium's JP Morgan Chase accounts and his personal JP Morgan Chase accounts. On December 1, 2010, Mr. Palazzolo transferred $400,000 from the Chase 7742 Account to F & M without notifying the Board. (Id. ¶¶ 75-76.) Later that month, on December 29, 2010, Mr. Palazzolo transferred an additional $500,000 from the very same Chase account to his attorney, Lawrence Gottlieb, without notifying the Board. (Id. ¶ 77.) All told, from February 28, 2011 through June 12, 2015, Mr. Palazzolo made 22 additional unauthorized transfers, for a total of $2,893,369.16, from the Condominium's reserve funds held in the Chase 7742 Account to F & M through his personal accounts. (Id. ¶ 80; id. Ex. A.) This included an additional $400,000 transfer from the Chase 7742 Account to F & M and $100,000 to an unknown recipient on February 28, 2011 and March 10, 2011, respectively. (Id. ¶ 92.) On April 8, 2011, $500,000-the total previously transferred out of the Chase 7742 Account-was transferred from Ridgeview LLC back to the Chase 7742 Account. (Id. ) Those funds were then transferred back to Ridgeview LLC three days later, (id. ), and returned again to the Chase 7742 Account from an unidentified source on June 6, 2011, (id. ).
As for the two other Chase accounts, Mr. Palazzolo engaged in the very same pattern of transfers. Specifically, on July 19, August 5, and November 10, 2011, Mr. Palazzolo transferred a combined total of $79,481.69 from the Condominium's Chase 7595 Account to F & M without notifying the Board. (Id. ¶ 84.) Similarly, Mr. Palazzolo used the Chase 9221 Account to transfer $120,340.27 to F & M through three transactions between March and July 2015. (Id. ¶ 85.) All told, over the course of his tenure as Treasurer, Mr. Palazzolo transferred $8,078,985.26 from the Condominium's Reserve Account without authorization, failing to return $668,271.33. (Id. ¶ 90.)
Mr. Palazzolo also used the Chase accounts to divert funds due to the Condominium. For example, the Condominium was in receipt of a $650,122.70 check that accounted for the total amount to be refunded to each current or former unit owner in the Condominium based on a tax certiorari proceeding reducing the real property taxes owed by the unit owners. (Id. ¶ 86.) Mr. Palazzolo deposited the full amount of the tax certiorari proceeds into the Chase 7595 Account, which he then used to disburse refund checks to unit owners. (Id. ¶ 88.) Mr. Palazzolo and Reitano then circulated notices throughout the Condominium that the checks were available for unit owners, and those that picked up their check received checks frequently signed by Tobia. (Id. ¶ 89.) Although Mr. Palazzolo knew precisely how much each unit owner was due, he made no attempt to issue refunds to the 17 unit owners who did not pick up their check, and kept the money for himself. (Id. ) Similarly, in 2012, Mr. Palazzolo diverted insurance proceeds that flowed to the Condominium as a result of Superstorm Sandy on four separate occasions between November 2012 and May 2013. (Id. ¶¶ 97-98.) Within days of receipt of the check from the Condominium's insurer, Mr. Palazzolo would transfer, the identical amount of insurance proceeds-or more-to F & M. (Id. ¶ 98.) Ultimately, Mr. Palazzolo transferred $478,095.14 in insurance proceeds to F & M, as well as an additional $15,774.02 tacked onto those proceeds. (Id. ¶¶ 99-100.)
c. The Foreclosed Units
In April 2012, the Board was approached by Ridgewood Savings Bank's subsidiary, Ridge Forest Realty Corp. ("Ridgewood"), with an opportunity to purchase three units in the Condominium that were owned by Mr. Palazzolo, or by related persons or entities under his control, and had entered foreclosure, for $900,000. (Id. ¶ 102.) The Board considered the offer, but prepared to decline it, believing the purchase price would deplete its Reserve Account. (Id. ¶ 104.) Mr. Palazzolo, however, insisted that the Condominium purchase the units on his behalf, and offered to advance the down payment for purchase. (Id. ¶¶ 105-06.) The Board agreed, not knowing that it had less than $7,000 in its Reserve Account. (Id. ¶ 105.)
Thus, after negotiating a price reduction to $875,000, Mr. Palazzolo transferred $87,500 to the Condominium for a down payment, and the Condominium entered into a contract to purchase the units, then assigning its rights to Mr. Palazzolo. (Id. ¶ 106.) Mr. Palazzolo then compiled the balance due by using the Condominium's reserve funds, and with less than one month before closing, Mr. Palazzolo had amassed $725,000 by transferring funds from the Condominium's accounts to F & M's accounts. (Id. ¶ 107.) Mr. Palazzolo then transferred $800,000 back to the Chase 7742 Account as the balance of the purchase price he owed, although that money was actually just a return of the Condominium's funds. (Id. ¶ 108.) Thus, Mr. Palazzolo simply used the Condominium's own money to finance a purchase of three units on his own behalf. (Id. )
2. Depletion of the Operating Account
By March 2014, the Condominium began to have liquidity issues and it became clear that the Condominium's Reserve Account had reached an unsustainably low amount. (Id. ¶ 109.) This led to a depletion of the Condominium's Operating Account, which impacted the Condominium's ability to pay for basic needs and services such as taxes, payroll, security, and routine maintenance. (Id. ¶ 110.) In response, Mr. Palazzolo authorized numerous transfers to cover up the fact that there were gross deficiencies in the Operating Account. (Id. ¶ 111.) For example, Mr. Palazzolo caused F & M to transfer $945,000 to the Chase 7742 Account on March 21, 2014, making it appear that the Condominium was solvent, when in fact that money had been long since taken by F & M and Mr. Palazzolo. (Id. )
3. The FloTV Deal
In 2010, FloTV, a subsidiary of Qualcomm Incorporated, negotiated with the Condominium to obtain an easement permitting FloTV to install an antenna on the rooftop of the building in exchange for a $4,200 monthly payment. (Id. ¶ 114.) FloTV, however, folded in 2014, and began to wind down operations. (Id. ¶ 115.) Mr. Palazzolo conducted the negotiations over what would be paid to the Condominium under the contract in light of this early termination, which resulted in a $143,714 payment to the Condominium. (Id. ¶¶ 115-16.) However, instead of depositing this check into the Condominium's Reserve Account, the check was deposited in the account of Premium Staffing, which maintained the "Garage Account." (Id. ¶ 118.) The proceeds of the FloTV deal were never turned over to the Condominium. (Id. )
4. Misrepresentations in Financial Statements and Bank Documents
According to Plaintiff, since 2010, Mr. Palazzolo has altered account documents generated by the bank with regard to the Chase 7742 Account. (Id. ¶ 120.) Plaintiff provides several examples of this conduct. First, on December 29, 2010, Mr. Palazzolo transferred $500,000 from the Chase 7742 account to his attorney's escrow account. (Id. ) This left the Chase 7742 Account with an actual balance of $42,827.27. (Id. ) However, Mr. Palazzolo altered-and Lori Overton, a Chase employee, signed-the year-end statement to reflect the balance from December 28, 2010: $542,618.78. (Id. ) Mr. Palazzolo then provided this account balance to employees of the Trump Corporation and employees of O'Connor Davies LLP, who did the annual audit work for the Condominium, without informing them that the true balance was approximately $500,000 less than presented on the balance statement. (Id. )
The next year, in December 2011, Mr. Palazzolo undertook a similar course of action, providing false documentation to the Trump Corporation and O'Connor Davies LLP that reflected a total balance of $723,580.69 in the Condominium's Reserve Account. (Id. ¶ 121.) However, the true balance was only $15,152.40. (Id. ) And the year after that, December 2012, the Condominium's Reserve Account fell to $9,064, although Mr. Palazzolo reported a balance of $829,264 in the financial statements. (Id. ¶ 122.) In December 2013, Mr. Palazzolo again presented fabricated account documents to reflect a Reserve Account balance of $940,472, when the actual balance was $5,372. (Id. ¶ 123.)
5. One Final Transfer from the Reserve Account
On May 12, 2015, the Board drafted and adopted an Ethics Policy and Code of Conduct ("Ethics Policy") aimed at prohibiting self-dealing and any attempted preferential treatment for a Board member or their relatives in the use of Condominium property or business. (Id. ¶ 146.) Both Mr. Palazzolo and Tobia signed the Ethics Policy. (Id. )
Nonetheless, on June 29, 2015, Mr. Palazzolo effectuated the transfer of $931,250 in refinancing proceeds into the Chase 7742 Account. (Id. ¶ 147.) The very next day, Mr. Palazzolo transferred a total of $1.2 million from the Chase 7742 Account to RLA without the Board's approval. (Id. ) This transfer did not go unnoticed, as the Board was notified in July 2015 by an employee of Trump Corporation who had reviewed a summary of the Reserve Account prepared by Tobia reflecting this transfer. (Id. ¶ 148.) The Board confronted Mr. Palazzolo, who responded that Tobia executed the note and agreed to pay interest at six percent. (Id. ¶ 151.) The Board demanded that Mr. Palazzolo and Tobia undo the transaction, which he eventually did on July 20, 2015. (Id. ¶ 152.) However, the funds were returned to the Condominium via F & M and no RLA. (Id. ¶ 153.) Two days later, Mr. Palazzolo transferred the $1.2 million back to F & M from the Chase 7742 Account, and then returned the money to the Condominium by a transfer into a Banco Popular account controlled by the Condominium. (Id. ¶ 154.)
On December 16, 2015, as a result of the June and July 2015 transactions, Mr. Palazzolo and Tobia were voted off the Board. (Id. ¶ 155.) However, Mr. Palazzolo was reappointed to the Board shortly thereafter by RLA and ACC, the owners of the Condominium's three commercial units, as their representative. (Id. )
6. The Garage Account
After Mr. Palazzolo and Tobia's ouster, the Board conducted an internal investigation of the Condominium's Reserve and Operating Accounts. (Id. ¶ 156.) During this investigation, it came to light that Palazzolo, together with DiStefano and Santangelo, used the Condominium's parking garage in much the same way as the Reserve Account. (Id. ¶ 158.)
The Condominium had initially purchased the parking garage from Cappelli in 2008, after which the Board hired Supreme to provide valet services from the Condominium for $32,000 per month. (Id. ¶ 159.) On December 27, 2007, prior to the Condominium's purchase of the garage, DiStefano opened a bank account at Commerce Bank in the name of "Premium Staffing, LLC TTCC Garage" (the "Garage Account"). (Id. ¶ 160.) DiStefano was the sole signatory of the Garage Account, and upon its creation and without notifying the Board, Mr. Palazzolo directed all garage income into the Garage Account. (Id. ) DiStefano and Santangelo would then issue the $32,000 monthly payment to Supreme. (Id. ) Premium Staffing would also pay itself a monthly fee from the Garage Account for this service. (Id. ) Indeed, beginning in 2008, Premium Staffing collected virtually all revenue generated by the operation of the garage, and was thus responsible for payment of Garage expenses, including payments related to financing the acquisition of the garage from Cappelli. (Id. ¶ 163.)
Premium Staffing initially charged the Condominium a $3,000 monthly fee for managing the garage. (Id. ¶ 166.) This fee was increased to $4,000 in 2008, $4,500 in 2009, and $5,000 in 2010. (Id. ) Beginning in October 2010, Premium Staffing began to pay its fees and Supreme's fees in a single transfer from the Garage Account, which resulted in Premium Staffing stealthily increasing its monthly fee to $7,800. (Id. ¶ 167.) In February 2011, Premium Staffing's fee increased to $10,800 per month, increasing again in September 2011 to $11,800 per month. (Id. ¶ 168.) All told, between 2011 and 2014, Premium Staffing paid itself roughly $873,475-without Board authorization-for the services of paying Supreme, paying utilities, and paying certain other monthly expenses. (Id. )
In 2014, Palazzo and DiStefano approached the Condominium with a "Parking Agreement," under which Premium Parking would provide valet services. (Id. ¶ 169.) Those services were actually performed by Supreme, but the Parking Agreement made it impossible to determine what amount Premium Parking and Supreme would each be paid. (Id. ) Ultimately, the amounts listed in the Parking Agreement were meaningless, as Premium Parking was paid significantly more than any amount described therein before the Parking Agreement was terminated in 2016. (Id. ) In fact, by 2014, the amount paid to Premium Parking and Premium Staffing grew to be roughly 93% of the gross income generated by the garage, as opposed to 60% in 2008. (Id. ¶ 170.) Due to these increased fees, the garage incurred $35,259 in losses in 2014, as opposed to a $225,000 profit in 2009. (Id. ) Moreover, when the garage was profitable, Premium Staffing never returned those profits to the garage. (Id. ¶ 171.) As a result, Premium Parking and Premium Staffing facilitated the transfer of roughly $680,964.82 of the Condominium's money from the Garage Account to various Defendants from 2008 to 2015. (Id. ¶ 172.) These transfers include: ten transfers to F & M for a total of $152,944.79; three transfers to RLA for a total of $15,000; four transfers to First Resource for a total of $23,335.27; three transfers to B.A.B. I and II for a total of $43,167; 29 transfers to DiStefano for a total of $167,790; 15 transfers to Thomas for a total of $72,400; one transfer to Premium Staffing's parking operations at the White Plains Ritz Carlton for $60,000; and dozens of other transfers to individuals and businesses unaffiliated with the garage. (Id. ) In addition, Premium Staffing is alleged to have charged the Condominium $187,600 for a handyman, to be paid from the Garage Account, only to pay the handyman $30,000 and keep the remainder. (Id. ¶¶ 174-75.) Since replacing Premium Staffing and Premium Parking in 2016, the Board has saved nearly $500,000. (Id. ¶ 173.)
7. Diversion of Commercial Unity Utility Payments
The Condominium employed a third-party service provider, Quadlogic Corp. ("Quadlogic") to determine the appropriate charges for electricity to be allocated to each residential and commercial unit and the common areas. (Id. ¶ 177.) One of the three commercial units was owned by ACC, with the other two owned by RLA and leased to a hair salon, Demirjian. (Id. ) Unbeknownst to the Board, but allegedly known by Palazzolo and Tobia, Quadlogic incorrectly believed that the commercial sub-meters did not need to be tracked because the amounts within those units reflected the electrical use by all common areas in the Condominium. Quadlogic thus never charged the commercial units for their electricity use but rather passed those costs onto the Condominium. (Id. ¶ 178.)
After Mr. Palazzolo was removed from the Board, this mistake came to light, and the Board sought to determine why the commercial tenants were not paying for utilities. (Id. ¶ 179.) Demirjian explained that Mr. Palazzolo had informed them that he was paying the electric bills on their behalf, and that the commercial tenants should simply pay him directly. (Id. ) Demirjian then showed the Board a copy of a check that Mr. Palazzolo had shown him, which purported to show that Mr. Palazzolo had paid the Condominium $27,694 in unpaid electrical charges. (Id. ) However, no such payments were ever made to the Condominium. (Id. ¶ 180.) ACC in fact refuses to return any funds owed to the Condominium and refuses to pay for any portion of the maintenance charges or utilities owed to the Condominium. (Id. ¶ 179.)
Instead, Mr. Palazzolo and Tobia contend that the Board agreed that commercial unit owners would not pay for electricity, a contention for which there is no evidence. (Id. ¶ 180.) Accordingly, Mr. Palazzolo and Tobia simply kept the more than $300,000 paid by the commercial tenants for themselves, as opposed to turning those payments over to the Condominium for the electrical bills. (Id. )
C. Palazzolo Counterclaims Factual Background
The following facts are drawn from the Palazzolo Defendants' Counterclaims and are taken as true for the purpose of resolving Plaintiff's Motion.
In the fall of 2004, Mr. Palazzolo entered into multiple contracts wherein he purchased 21 units in the Condominium for $21 million dollars from the Condominium's sponsor. (Counterclaims ¶ 235 (Dkt. No. 122).) The purchase was conditioned upon the payoff of unpaid trade debt by the sponsor. (Id. ¶ 239.) Prior to closing, Cappelli, the principal of the Condominium's sponsor, offered Mr. Palazzolo a five percent discount if he closed immediately. (Id. ¶ 242.) Mr. Palazzolo rejected this offer, and instead asked that the sponsor contribute $800,000 to the Condominium to establish the Reserve Account. (Id. ¶ 244.)
According to Mr. Palazzolo, in reliance upon representations made by the Board to him, he gave up multiple personal business opportunities and forewent the monetary benefits that would have flowed to him based on those opportunities. (Id. ¶ 251.) In June or July 2009, the Board granted Mr. Palazzolo full control over the Reserve account and he used the Reserve account to enhance its value and further the business of the Condominium. (Id. ¶¶ 259-60.) It is not alleged that he was promised compensation for these actions, but rather that he could do what he wanted with the Reserve Account on behalf of the Condominium. (Id. ¶¶ 259-60.)
One such occasion was in 2006, prior to the date which Mr. Palazzolo says he was elected to the board, when Mr. Palazzolo convinced "his fellow members of the Board" to purchase energy from someone other than Con Edison. (Id. ¶ 316). Explaining that this kind of "speculation" was "somewhat obscure," Mr. Palazzolo alleges that he saved the Condominium approximately $1,154,000 during the ten-year period that he served as a member of the Board, without "obtaining" any fees or compensation for "arranging the Condominium to obtain its money in this matter." (Id. ¶¶ 318-19.)
Then, in July 2007, the Board sought to hire Lawrence Gomez ("Gomez") as a live-in resident manager. (Id. ¶¶ 265-66.) The only available unit owned by the Condominium was a one bedroom, but Gomez required a two bedroom for his family. (Id. ¶¶ 266.) To facilitate the hiring of Gomez, Mr. Palazzolo agreed to sell a unit he controlled valued at $750,000 to the Board for a discount of $40,000 for Gomez's use. (Id. ¶¶ 269-273.) Mr. Palazzolo also declined to collect no less than $165,000 in interest income for the benefit of the Board. (Id. ¶ 279.)
At an unspecified time in 2007, the Condominium's sponsor approached Mr. Palazzolo with another opportunity. This time, it was to purchase the garage and recreation center attached to the Condominium. (Id. ¶ 283.) While this would have resulted in substantial personal financial gain for Mr. Palazzolo, he instead advised the Board to purchase these assets from Cappelli. (Id. ¶¶ 283-86.) However, this purchase could not be consummated until the mortgage on the Condominium's retail spaces was satisfied. (Id. ¶ 287.) Given these circumstances, Mr. Palazzolo agreed to acquire the retail spaces through RLA, thus allowing the Condominium to close upon the purchase of the garage and recreation space in 2007. (Id. ¶¶ 289-90.)
Next, at an unspecified time, but during Mr. Palazzolo's tenure as Treasurer of the Board, Mr. Palazzolo implemented a hybrid staffing model where the Condominium saved at least $1,690,000 over a ten-year period by hiring non-union employees without "obtaining management fees, consulting fees, or other payments for staffing the organization he created." (Id. ¶¶ 305-13.)
Mr. Palazzolo then, at an unspecified time, was able to secure leases that generated income of $570,000 for the Condominium. (Id. ¶¶ 314-15.) However, Mr. Palazzolo does not allege that he personally forewent an opportunity in favor of providing this business to the Board.
At yet another unspecified point in time, Mr. Palazzolo alleges he purchased cheaper insurance policies for the Condominium, saving at least $880,000 over a ten-year period without "obtaining" management or consulting fees. (Id. ¶¶ 320-23.)
Additionally, at an unspecified time between 2006 and 2009, Mr. Palazzolo "directed" the opportunity to secure control of certain foreclosed apartments to the Board, rather than taking "the[ ] clear business opportunities for himself personally to purchase," said apartments. (Id. ¶¶ 324-27.) Mr. Palazzolo secured control of the units for the board, and was able to generate $1,020,660.33 in rental income between 2009 and 2015 for the Condominium. (Id. ¶¶ 328-33.) Moreover, these units resulted in income of no less than $2,470,000, in combined rental and common charges, for the Condominium. (Id. ¶ 338.)
Finally, in October 2012, Mr. Palazzolo contends that via F & M, he was able to perform emergency flood repairs for at least 23 unit owners in the Condominium, presumably caused by Superstorm Sandy. (Id. ¶¶ 296-304.) Mr. Palazzolo "laid out significant money to effect those repairs," (id. ¶ 297), and "used his personal contact ... to effect the emergency repairs, for the benefit of the Board and unit owners, without payment or commissions he otherwise could have obtained as a private investor, [or] an insurance or construction consultant," (id. ¶ 298). Mr. Palazzolo used the excess funds from the insurance proceeds, due to these below market repair rates, "to effect capital improvements and amenity upgrades" in the Condominium. (Id. ¶ 303.) In total, the cost of the repairs and amenity improvements totaled "a fair market value well in excess of" the insurance proceeds, to Mr. Palazzolo's own detriment as he received no compensation for these actions. (Id. ¶ 304.)
D. Procedural Background
Plaintiff filed its Complaint on November 28, 2016. (Dkt. No. 1.) After receiving numerous extensions of time to file an answer, (see Dkt. Nos. 42, 44, 48, 53-54, 58, 63), Defendants Reitano and former Defendant Lori Overton ("Overton") filed pre-motion letters on January 31, 2017 seeking to dismiss the Complaint, (Dkt. Nos. 55-56). Defendant Reda Romano then filed a pre-motion letter on February 23, 2017, (Dkt. No. 65), and shortly thereafter, on February 27 and 28, 2017, the remaining Defendants filed their respective pre-motion letters, (Dkt. No. 67, 70). Plaintiff then filed its responsive letters on March 3, 2017, (Dkt. Nos. 72-77), and the Court held a pre-motion conference on May 2, 2017, (Dkt. (entry for May 2, 2017) ). The Court then set a briefing schedule, allowing Overton, ACC, and Reda Romano to file their respective Motions To Dismiss. (Mot. Scheduling Order (Dkt. No. 81).) However, on May 22, 2017, Plaintiff voluntarily dismissed the claims against Overton, (Dkt. No. 84), and then dismissed the claims relevant to Reda Romano's Motion on July 11, 2017, (Dkt. No. 89). Reda Romano then filed its Answer on August 8, 2017, along with crossclaims against all remaining Defendants. (Reda Romano Answer (Dkt. No. 97).) In the meantime, ACC filed its Motion on June 16, 2017, in accordance with the briefing schedule. (Dkt. Nos. 85-86.)
Following another extension of time to file an answer, (Dkt. No. 95), Defendants DiStefano, First Resource, RLA, Premium Parking, Premium Staffing, Santangelo, Thomas, Tobia, and Reitano filed their Answer and Counterclaim against Plaintiff on August 22, 2017, (Answer (Dkt. No. 100) ). Mr. Palazzolo and Palazzolo, B.A.B. Group I and II, F & M, and Ridgeview LLC filed their Answer and Counterclaim the same day. (Palazzolo Answer (Dkt. No. 102).) All Defendants filed their respective answers to Reda Romano's crossclaims on August 28, 2017. (Dkt. Nos. 104-105.)
Plaintiff filed an Answer to Premium Staffing's counterclaim, (Dkt. No. 108), and a pre-motion letter in response to the Palazzolo counterclaims, (Dkt. No. 107), to which the Palazzolo Defendants responded on September 15, 2017, (Dkt. No. 109). Next, the remaining Defendants, but for the Palazzolo Defendants, ACC, and Reda Romano, filed a pre-motion letter seeking to file a Motion for Judgment on the Pleadings, (Dkt. No. 111), which the Palazzolo Defendants joined in on September 29, 2017, (Dkt. No. 113). The Court held a conference on the putative Motions, allowing the Parties to amend their respective complaints and counterclaims by November 22, 2017. (Dkt. (entry for October 25, 2017).) Plaintiff filed an Amended Complaint on November 21, 2017, (Dkt. No. 120), and the Palazzolo Defendants filed and answer and counterclaims the next day, (Dkt. No. 122). Reda Romano filed an answer and crossclaim against all Defendants on December 12, 2017, (Dkt. No. 127), and the Defendants filed their respective answers to Reda Romano's crossclaim shortly thereafter, (Dkt. Nos. 131, 134, 136).
Defendants DiStefano, First Resource, Premium Parking, Premium Staffing, RLA, Reitano, Santangelo, Thomas, and Tobia Defendants, and ACC, filed pre-motion letters, this time seeking to file a Motion To Dismiss Plaintiff's Amended Complaint. (Dkt. Nos. 125, 129.) Plaintiff filed responsive letters on December 13 and 15, 2017, (Dkt. No. 130, 132-33), and filed its own pre-motion letter on December 6, 2017 seeking to dismiss the Palazzolo counterclaims, (Dkt. No. 124).
The Court held a conference on January 18, 2018, and adopted a briefing schedule for the present Motions. (Mot. Scheduling Order (Dkt. No. 137).) The Court terminated the prior ACC Motion, and had all Parties refile their respective Motions by February 16, 2018, with opposition due on March 16, 2018, and replies by March 30, 2018. (Id. )
Defendants DiStefano, First Resource, Premium Parking, Premium Staffing, RLA, Reitano, Santangelo, Thomas, and Tobia ("Tobia Defendants") filed their Motion on February 16, 2018. (Dkt. Nos. 138-39, 143.) ACC filed its Motion that same day. (Dkt. Nos. 144-146.) Plaintiff filed its Motion To Dismiss the Palazzolo counterclaims as well. (Dkt. Nos. 140-142.) Plaintiff filed their opposition to the ACC Motion, (Dkt. No. 147), and the Tobia Defendants' Motion, (Dkt. No. 148), on March 16, 2018. The Palazzolo Defendants filed their Opposition to Plaintiff's Motion that same day. (Dkt. No. 149.) ACC filed its Reply on March 29, 2018, (Dkt. No. 152), the Tobia Defendants filed their Reply on March 30, 2018, (Dkt. No. 154), and Plaintiff filed its Reply that same day, (Dkt. No. 153).
II. Discussion
A. Standard of Review
The Supreme Court has held that although a complaint "does not need detailed factual allegations" to survive a motion to dismiss, "a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (alteration and internal quotation marks omitted). Indeed, Rule 8 of the Federal Rules of Civil Procedure"demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotation marks omitted). "Nor does a complaint suffice if it tenders naked assertions devoid of further factual enhancement." Id. (alteration and internal quotation marks omitted). Instead, a complaint's "[f]actual allegations must be enough to raise a right to relief above the speculative level." Twombly , 550 U.S. at 555, 127 S.Ct. 1955. Although "once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint," id. at 563, 127 S.Ct. 1955, and a plaintiff must allege "only enough facts to state a claim to relief that is plausible on its face," id. at 570, 127 S.Ct. 1955, if a plaintiff has not "nudged [his or her] claims across the line from conceivable to plausible, the[ ] complaint must be dismissed," id. ; see also Iqbal , 556 U.S. at 679, 129 S.Ct. 1937 ("Determining whether a complaint states a plausible claim for relief will ... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not 'show[n]'-'that the pleader is entitled to relief.' " (citation omitted) (second alteration in original) (quoting Fed. R. Civ. P. 8(a)(2) ) ); id. at 678-79, 129 S.Ct. 1937 (" Rule 8 marks a notable and generous departure from the hypertechnical, code-pleading regime of a prior era, but it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions.").
In considering the respective Motions To Dismiss, the Court is required to "accept as true all of the factual allegations contained in the [C]omplaint." Erickson v. Pardus , 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007) (per curiam); see also Nielsen v. Rabin , 746 F.3d 58, 62 (2d Cir. 2014) (same). And, the Court must "draw[ ] all reasonable inferences in favor of the plaintiff." Daniel v. T & M Prot. Res., Inc. , 992 F.Supp.2d 302, 304 n.1 (S.D.N.Y. 2014) (citing Koch v. Christie's Int'l PLC , 699 F.3d 141, 145 (2d Cir. 2012) ). Additionally, "[i]n adjudicating a Rule 12(b)(6) motion, a district court must confine its consideration to facts stated on the face of the complaint, in documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be taken." Leonard F. v. Isr. Disc. Bank of N.Y. , 199 F.3d 99, 107 (2d Cir. 1999) (internal quotation marks omitted); see also Wang v. Palmisano , 157 F.Supp.3d 306, 317 (S.D.N.Y. 2016) (same). These aforementioned standards are equally applicable to a motion to dismiss counterclaims under Rule 12(b)(6). See Tacopina v. Kerik , No. 14-CV-749, 2016 WL 1268268, at *3 (S.D.N.Y. Mar. 31, 2016) ("A motion to dismiss counterclaims under Rule 12(b)(6) is decided under the same standard applied to a motion to dismiss the claims of a complaint." (internal quotation marks omitted) ).
B. Analysis
1. Plaintiff's Claims
As is relevant here, the Amended Complaint alleges that all Defendants, but for Reda Romano, as members of the "Palazzolo Enterprise," violated RICO, 18 U.S.C. § 1962(c), and that those same Defendants conspired to violate RICO, 18 U.S.C. § 1962(d). (Am. Compl. ¶¶ 209-224.) Plaintiff also alleges that all moving Defendants aided and abetted Mr. Palazzolo's breach of fiduciary duty, (id. ¶¶ 233-36), and that all moving Defendants, but for Reitano, are liable under state law for conversion, unjust enrichment, money had and received, and aiding and abetting Mr. Palazzolo's breach of fiduciary duty (id. ¶¶ 225-28, 233-35, 246-49, 250-52). The Court will address Plaintiff's RICO claims in turn, and then consider Plaintiff's state law claims.
a. Plaintiff's RICO Allegations under § 1962(c)
Plaintiff's substantive RICO cause of action against all moving Defendants is brought pursuant to 18 U.S.C. § 1962(c). Under § 1962(c), it is "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). To establish a claim for a civil violation of section 1962(c), a plaintiff must show "that a person engaged in (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Cruz v. FXDirectDealer, LLC , 720 F.3d 115, 120 (2d Cir. 2013) (internal quotation marks omitted).
i. Enterprise Requirement
A RICO enterprise is defined as "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). The Amended Complaint identifies a single "association-in-fact" enterprise: the "Palazzolo Enterprise," consisting of all Defendants except Reda Romano. (Am. Compl. ¶¶ 5, 188, 209-15.) An association-in-fact enterprise means "a group of persons associated together for a common purpose of engaging in a course of conduct," which "is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit." United States v. Turkette , 452 U.S. 576, 583, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981). This type of RICO enterprise "must have at least three structural features: [1] a purpose, [2] relationships among those associated with the enterprise, and [3] longevity sufficient to permit these associates to pursue the enterprise's purpose." Boyle v. United States , 556 U.S. 938, 946, 129 S.Ct. 2237, 173 L.Ed.2d 1265 (2009). However, the "group need not have a hierarchical structure or a chain of command." Id. at 948, 129 S.Ct. 2237 (internal quotation marks omitted).
The Court must, as a threshold matter, address the Tobia Defendants' contention that Plaintiff's claim under § 1962(c) fails as to all Defendant members of the Palazzolo Enterprise "for lack of distinctness." (Tobia, et al. Defs.' Mem in Supp. of Mot. To Dismiss ("Tobia Defs.' Mem.") 4 (Dkt. No. 143).) Under the distinctness requirement, "a plaintiff must allege the existence of two distinct entities: (1) a 'person'; and (2) an 'enterprise' that is not simply the same 'person' referred to by a different name." Cruz , 720 F.3d at 120 (alterations and internal quotation marks omitted); see also Cedric Kushner Promotions, Ltd. v. King , 533 U.S. 158, 161, 121 S.Ct. 2087, 150 L.Ed.2d 198 (2001) (same, because the statute applies only to " 'person[s]' who are 'employed by or associated with' the 'enterprise.' ") (internal citation omitted). "[T]he 'person'-not the 'enterprise'-is the party who may be named as the defendant in a civil RICO claim based on a substantive violation of § 1962(c)."
Palatkevich v. Choupak , Nos. 12-CV-1681, 12-CV-1682, 2014 WL 1509236, at *12 (S.D.N.Y. Jan. 24, 2014); see also Cruz , 720 F.3d at 120 ("[A] person violates the [RICO] statute by conducting an enterprise through a pattern of criminality.").
First, the Tobia Defendants claim that "because all of the members of the association-in-fact enterprise are also named as RICO Defendants," it cannot be distinct as defined by the Second Circuit. (Tobia Defs.' Mem. 4.) This, however, is a fundamental misunderstanding of the distinctness requirement. The case law is clear that the same entity cannot be both the person and the enterprise, see e.g., Cruz , 720 F.3d at 120, but that is simply not the same as saying that the defendants cannot collectively constitute the enterprise. For example, in Securitron Magnalock Corp. v. Schnabolk , 65 F.3d 256 (2d Cir. 1995), the Second Circuit concluded that an individual person and "two separate and distinct corporations" may be held liable, as the three are "clearly ... RICO person[s] as well as ... member[s] of a RICO enterprise." Id. at 263. Indeed, the distinctness cases are not necessarily concerned with complete overlap of RICO persons and RICO enterprises. Rather, the core question is whether the RICO enterprise is distinct from each of the RICO persons, in which case it satisfies the distinctness requirement, id. , or if the RICO enterprise is deemed associated with itself, Bennett v. U.S. Trust Co. of N.Y., 770 F.2d 308, 315 (2d Cir. 1985) ; Agency Holding Corp. v. Malley-Duff & Assocs., Inc. , 483 U.S. 143, 107 S.Ct. 2759, 97 L.Ed.2d 121 (1987), which is not permissible. In fact, the Tobia Defendants' core authority, City of New York v. Cyco.Net, Inc. , 383 F.Supp.2d 526 (S.D.N.Y. 2005), acknowledges that "it is possible for an entity to be both a RICO person and a member of a RICO enterprise," so long as the enterprise "meet[s] the distinctness requirement." Id. at 550. Tobia Defendants rightly note it is mandatory for Plaintiff to allege "that other entities in the enterprise are not defendants," but that was but one of multiple examples of enterprise structures given by the court in Cyco.Net . Id. The court there recognized that distinctness may be met, as is relevant here, where "the entities that comprise the enterprise are different corporations." Id. ; see also Blue Cross & Blue Shield of New Jersey, Inc. v. Philip Morris, Inc. , 113 F.Supp.2d 345, 365 (E.D.N.Y. 2000) ("Multiple corporations or other legal entities can, when working in concert either overtly or covertly, form an association-in-fact RICO enterprise."); In re Energy Sys. Equip. Leasing Sec. Litig., 642 F.Supp. 718, 740-41 (E.D.N.Y. 1986) (holding that an "enterprise composed of an association-in-fact, even if made up entirely of individual defendants deemed to be § 1961(3) 'persons,' is to be viewed for purposes of RICO claims as possessing a separate existence from its individual members" and thus finding that "the various defendants constitute persons under RICO, while the interaction and relationship between these defendants with regard to the alleged scheme ... comprises an association-in-fact enterprise separate and distinct from these individual persons").
Here, Plaintiff alleges that Defendants Mr. Palazzolo, Palazzolo, Tobia, Reitano, Santangelo, DiStefano, Thomas, F & M, RLA, Premium Staffing, Premium Parking, ACC, Ridgeview LLC, B.A.B. I, B.A.B. II, and First Resource comprise the "Palazzolo Enterprise." (Am. Compl. ¶ 5.) Accordingly, the Palazzolo Enterprise consists of seven individuals and nine businesses, each of whom is alleged to have committed predicate acts of racketeering in support of the Palazzolo Enterprise. (Id. ¶ 7.) Plaintiff further alleges that the members of the enterprise "conspired with each other to conduct, finance, and acquire ownership interests in the Enterprise and its business affairs through a pattern of racketeering," and that the members of the enterprise "knowingly and improperly used the Condominium's money to fund their own business activities." (Id. ¶ 40; see also id. ¶ 188 ("The defendants are a group of persons and entities associated together in fact as the Palazzolo Enterprise for the common purpose of carrying out an ongoing enterprise ... [n]amely, through years of individual acts of theft and fraud to cover that theft, these defendants stole money from the Condominium.").)
As pled, the Amended Complaint does not allege that the persons and entities that comprise the Palazzolo Enterprise all "operate within a unified corporate structure." Discon v. Nynex Corp. , 93 F.3d 1055, 1064 (2d Cir. 1996). The Court notes that the pleadings indicate that nearly all of the corporate entities share an address at Palazzolo Plaza, and that Mr. Palazzolo is alleged to have "controlled or was otherwise a member or managing member" of seven of the nine corporate entities. (Am. Compl. ¶ 11.) For example, Mr. Palazzolo is alleged to have "controlled or was otherwise a member or managing member" of RLA, (id. ), but also, "[a]t all relevant times, [D]efendant Tobia controlled and/or was a member or managing member of RLA," without mention of Mr. Palazzolo, (id. ¶ 19). It may well be that, after discovery, Defendants could establish that the seven corporate entities and their nine respective employees were all "operat[ing] as part of a single, unified corporate structure and are, as such, not sufficiently distinct to demonstrate the existence of a RICO enterprise," Cruz , 720 F.3d at 121, but, as currently pled in the Amended Complaint, that is not the case. Indeed, the Amended Complaint does not specifically allege that each corporate entity has identical ownership, employees, or membership; rather, the individual Defendants have varying, non-overlapping roles in corporations that, as is alleged here, share nothing more than an address and a connection to Mr. Palazzolo. Accordingly "[u]nlike enterprises that only consist of a corporation and its employees, here the [Palazzolo] [E]nterprise is an amalgam of ... individual defendants and corporations." Stolow v. Greg Manning Auctions Inc. , 258 F.Supp.2d 236, 247 (S.D.N.Y. 2003), aff'd , 80 F. App'x 722 (2d Cir. 2003) ; cf. Crabhouse of Douglaston Inc. v. Newsday Inc. , 801 F.Supp.2d 64, 78 (E.D.N.Y. 2011) (acknowledging that distinctiveness would be satisfied had there been "three separate companies and three distinct sets of employees/agents," but noting that the companies in that case were all "wholly owned subsidiaries" of the parent defendant and thus "not distinct from their parent company for the purposes of alleging a RICO enterprise"). This is unlike Riverwoods , Cruz , or Discon , as Plaintiff alleges the existence of an enterprise consisting of several distinct businesses and individuals associated with those businesses, as opposed to a single corporate entity associating solely with its employees or agents. Accordingly, as pled, the Amended Complaint sufficiently alleges distinctness for purposes of establishing a RICO enterprise.
ii. Predicate Racketeering Acts
Next, all Defendants argue that "[t]he Amended Complaint fails to allege that any Defendant, other than Mr. Palazzolo, personally committed any RICO predicate acts." (Tobia Defs.' Mem 7; see also ACC Mem. of Law in Supp. of Mot. To Dismiss ("ACC Mem.") 6 (Dkt. No. 146) ("The Complaint ... entirely fails to identify, much less particularize, which of these predicate acts was committed by ACC in furtherance of the ... purported RICO
enterprise.").) In effect, Defendants actually argue that Plaintiff has made collective allegations and has failed to identify what, if any, predicate acts were taken by the moving Defendants. (Tobia Defs.' Mem 7 ("[S]imply lumping ... Defendants into collective allegations, as Plaintiff does in the Amended Complaint, fails the particularity requirement of Rule 9(b) regarding RICO claims under § 1962(c)." (internal quotation marks omitted); ACC Mem. 6 ("[A] plaintiff must allege that each RICO defendant committed at least two predicate acts of racketeering activity within the last 10 years.").) )
Rule 9(b)'s heightened pleading standard requires plaintiffs "alleging fraud" to "state with particularity the circumstances constituting fraud ..." Fed. R. Civ. P. 9(b). In the context of a civil RICO claim, "all allegations of fraudulent predicate acts[ ] are subject to the heightened pleading requirement of [ Rule 9(b) ]." First Capital Asset Mgmt., Inc. v. Satinwood, Inc. , 385 F.3d 159, 178 (2d Cir. 2004). This includes allegations of predicate acts of mail, wire, and bank fraud, and conduct under the National Stolen Property Act ("NSPA"). See Spool v. World Child Int'l Adoption Agency , 520 F.3d 178, 185 (2d Cir. 2008) (holding that the plaintiff's mail and wire fraud allegations were not "pled with the requisite particularity"); Leung v. Law , 387 F.Supp.2d 105, 113 (E.D.N.Y. 2005) (applying Rule 9(b)'s pleading standard to RICO claims alleging predicate acts of bank fraud); Kriss v. Bayrock Grp. LLC , No. 10-CV-3959, 2016 WL 7046816, at *7-8 (S.D.N.Y. Dec. 2, 2016), on reconsideration in part , 2017 WL 1901966 (S.D.N.Y. May 8, 2017) (applying Rule 9(b)'s pleading standard to claims RICO claims alleging predicate acts under the NSPA).
"The essential elements of a mail or wire fraud violation are (1) a scheme to defraud, (2) money or property as the object of the scheme, and (3) use of the mails or wires to further the scheme." United States v. Shellef , 507 F.3d 82, 107 (2d Cir. 2007) (internal quotation marks omitted). In general, "[p]laintiffs must plead ... mail [or wire] fraud with particularity, and establish that the [communications] were in furtherance of a fraudulent scheme." Lundy v. Catholic Health Sys. of Long Island Inc. , 711 F.3d 106, 119 (2d Cir. 2013). This normally requires that "allegations of predicate mail and wire fraud acts ... state the contents of the communications, who was involved, and where and when they took place, and [should] explain why they were fraudulent." Spool , 520 F.3d at 185 (alterations and internal quotation marks omitted). However, "courts in the Second Circuit have applied a different standard in cases where plaintiff claims that mails or wires were simply used in furtherance of a master plan to defraud, but does not allege that the communications themselves contained false or misleading information." Angermeir v. Cohen, 14 F.Supp.3d 134, 145 (S.D.N.Y. 2014) (alterations and internal quotation marks omitted). "In such cases, including complex civil RICO actions involving multiple defendants, Rule 9(b) does not require that the temporal or geographic particulars of each mailing or wire transmission made in furtherance of the fraudulent scheme be stated with particularity." Id. (citation internal quotation marks omitted). "Instead, Rule 9(b) requires only that the plaintiff delineate with adequate particularity in the body of the complaint, the specific circumstances constituting the overall fraudulent scheme." Id. (internal quotation marks omitted); see also Curtis & Assocs., P.C. v. Law Offices of David M. Bushman, Esq. , 758 F.Supp.2d 153, 177 (E.D.N.Y. 2010) ("[I]n cases where plaintiffs allege that the mails or wires were simply used in furtherance of a master plan to defraud, ... particularity as to the mailings themselves is unnecessary ..." (citations and internal quotation marks omitted) ); Serin v. N. Leasing Sys., Inc. , No. 06-CV-1625, 2009 WL 7823216, at *7 (S.D.N.Y. Dec. 18, 2009) ("In applying Rule 9(b) to predicate acts of mail or wire fraud, Southern District of New York courts have articulated different requirements to apply in ... [the] 'in furtherance of fraud' context."); Am. Med. Ass'n v. United Healthcare Corp. , 588 F.Supp.2d 432, 442 (S.D.N.Y. 2008) ("Allegations said to be in furtherance of fraud are held to a different pleading standard entirely."); Evercrete Corp. v. H-Cap Ltd. , 429 F.Supp.2d 612, 624 (S.D.N.Y. 2006) ("[W]here the plaintiff claims that the mail or wires were simply used in furtherance of a scheme to defraud, the complaint need not be specific as to each allegation of mail or wire fraud as long as the nature of the RICO scheme is sufficiently pleaded so as to give notice to the defendants." (internal quotation marks omitted) ); cf. Schmuck v. United States , 489 U.S. 705, 710-11, 109 S.Ct. 1443, 103 L.Ed.2d 734 (1989) ("To be part of the execution of [a] fraud ... the use of the mails need not be an essential element of the scheme. It is sufficient for the mailing to be incident to an essential part of the scheme or a step in the plot." (citations, alterations, and internal quotation marks omitted) ). As one court has explained,
[t]he rationale for this approach is twofold: one, mailings made only in furtherance of a scheme are not technically allegations of fraud within the meaning of Rule 9(b) ; and two, the very purpose of applying Rule 9(b) to mailings in furtherance of the scheme is obviated where a plaintiff alleges the wider scheme with the requisite particularity.
Crabhouse of Douglaston Inc.