Bd. of Managers of Trump Tower at City Ctr. Condo. v. Palazzolo
Docket: No. 16-CV-9188 (KMK)
Court: District Court, S.D. Illinois; September 28, 2018; Federal District Court
The Board of Managers of Trump Tower at City Center Condominium, led by President Alan Neiditch, has initiated legal action against multiple defendants, including Frank Palazzolo and various associated entities, alleging violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) under three specific sections: 18 U.S.C. 1962(a), (b), and (c), with additional claims of conspiracy under 18 U.S.C. 1962(d). The plaintiff also asserts various state law claims such as conversion, breach of fiduciary duty, fraud, unjust enrichment, and professional malpractice against some defendants.
Currently, there are three motions before the court: two motions to dismiss the amended complaint filed by the Tobia Defendants and ACC, and a motion by the plaintiff to dismiss counterclaims and strike affirmative defenses asserted by Mr. Palazzolo and related parties. The court has denied both motions to dismiss from the Tobia Defendants and ACC while granting the plaintiff's motion in part and denying it in part.
The action involves a complex array of parties with distinct roles in the alleged unlawful activities. The plaintiff Board is responsible for managing the common areas of the Condominium and has been in control since its establishment in 2005. Frank Palazzolo, previously Treasurer of the Condominium until his removal in 2015, currently resides there and represents commercial interests as a Board member. He is a real estate investor with connections to various businesses linked to the defendants. His wife is also associated with some of these entities.
Defendant Thomas was employed by Mr. Palazzolo and associated with F. M. Mr. Palazzolo's associate Tobia is alleged to have controlled or been involved with multiple limited liability companies, including RLA, ACC, First Resource, and Ridgeview LLC. Tobia served on the Board from 2006 until his ouster in 2015, including a term as Vice President from 2011 to 2015. Both Mr. Palazzolo and Tobia are said to have owned or controlled ACC, which owns one commercial unit, while RLA owns two commercial units. Reitano, another Board member from 2006 to 2013, is also alleged to have been involved with Ridgeview LLC, alongside Mr. Palazzolo and Tobia. Santangelo, the final member of Ridgeview LLC, is connected to Premium Staffing and Premium Parking. Ridgeview LLC was established by Mr. Palazzolo, Tobia, Reitano, and Santangelo for a real estate investment in Elmsford, New York, receiving financing through F. M, which diverted funds meant for Tobia's company, RLA. Mr. Palazzolo was involved in managing finances for the Condominium's garage through Premium Staffing, established in 2007, and Premium Parking, which took over valet services in 2014.
The Amended Complaint indicates that the Condominium has 215 units, primarily residential, and faced financial troubles shortly after its opening in 2005. Mr. Palazzolo became Treasurer in 2007 and successfully negotiated financial arrangements with developer Louis Cappelli, which contributed to stabilizing the Condominium's finances. His successes allowed him to exert significant influence over the Board, leading to business collaborations with other Board members and substantial loans to them.
Mr. Palazzolo entered into a $100,000 annual agreement with the Trump Corporation to manage the Condominium's Reserve Account. His management practices, alongside his involvement with Premium Staffing, Premium Parking, and ACC, are central to the current legal action. Prior to his tenure, the Reserve Account was combined with the operating account under Trump Corporation management. Mr. Palazzolo changed this, opening and closing seven accounts at four financial institutions between 2007 and 2015, complicating the tracking of funds and facilitating the alleged "Palazzolo Enterprise." Although the Board authorized only five transfers from the Reserve Account during his tenure, there were hundreds of withdrawals.
Specific accounts include the Key Bank account, where Mr. Palazzolo directed a $550,000 unauthorized transfer, and subsequent accounts at Hudson Valley Bank and JP Morgan Chase, with funds being transferred between these accounts without Board knowledge. In April 2010, Mr. Palazzolo proposed a $400,000 loan to RLA, failing to disclose that RLA was owned by fellow Board member Tobia and that its business address was linked to him. The loan was approved, with Mr. Palazzolo recusing himself from the vote. However, the funds were ultimately loaned from the Condominium's reserve to F. M, owned by Mr. Palazzolo.
On April 13, 2010, Mr. Palazzolo transferred $400,000 from the Key 158 Account to F. M to facilitate financing for the Ridgeview development, which led to dissatisfaction among Condominium unit owners regarding the use of reserve funds for an outside business, RLA. Following demands for restitution, Mr. Palazzolo returned $404,117 to the Key 158 Account. He then established three JP Morgan Chase accounts linked to his personal accounts, allowing him to manipulate the Condominium's financial records to falsely inflate the Reserve Account balance and execute unauthorized transfers.
Beginning in December 2010, Mr. Palazzolo initiated a series of unauthorized transfers, including $400,000 to F. M and $500,000 to his attorney, totaling 22 unauthorized transactions from February 2011 to June 2015, amounting to $2,893,369.16. These transactions included significant transfers back and forth between the Chase 7742 Account and Ridgeview LLC. Additionally, he engaged in similar unauthorized transfers from the other two Chase accounts, resulting in a total of $8,078,985.26 misappropriated from the Condominium's Reserve Account, with $668,271.33 remaining unreturned.
Mr. Palazzolo also diverted funds owed to the Condominium, such as a $650,122.70 check from a tax refund, which he deposited into the Chase 7595 Account and subsequently used to issue refund checks to unit owners. Notices were distributed by Mr. Palazzolo and Reitano, indicating the availability of these checks, which were often signed by Tobia.
Mr. Palazzolo failed to refund 17 unit owners their due amounts and instead retained the funds. From November 2012 to May 2013, he diverted $478,095.14 in insurance proceeds from Superstorm Sandy, transferring equivalent amounts to F. M on multiple occasions. In April 2012, he facilitated the purchase of three foreclosed units for $875,000, using the Condominium's reserve funds without the Board's knowledge of their low balance. Although he made an $87,500 down payment, he later financed the remaining $725,000 from the Condominium's accounts, effectively using its funds for his personal investment. By March 2014, the Condominium faced liquidity issues, leading to a depleted Operating Account, which Mr. Palazzolo attempted to mask by authorizing substantial transfers. For instance, he arranged a $945,000 transfer to make the Condominium appear solvent, despite it being money already taken by F. M. Additionally, he negotiated a deal with FloTV for $4,200 monthly payments, but upon the company's dissolution, a $143,714 settlement was deposited into a different account rather than the Condominium's, resulting in those funds never reaching the Condominium.
Mr. Palazzolo has been accused of altering financial statements and bank documents relating to the Chase 7742 Account since 2010. Specific instances include a December 29, 2010 transfer of $500,000 to his attorney's escrow account, which left the Chase account with a true balance of $42,827.27. However, he misrepresented the year-end statement to show a balance of $542,618.78, a figure provided to the Trump Corporation and O'Connor Davies LLP without revealing the actual lower balance. Similar misrepresentations occurred in subsequent years; in December 2011, he reported a Reserve Account balance of $723,580.69 when the actual balance was $15,152.40, and in December 2012, he claimed $829,264 while the balance was only $9,064. In December 2013, he falsely presented a Reserve Account balance of $940,472, with a real balance of just $5,372.
On May 12, 2015, the Board implemented an Ethics Policy to prevent self-dealing, which both Mr. Palazzolo and Tobia signed. Despite this, on June 29, 2015, Mr. Palazzolo transferred $931,250 from refinancing proceeds into the Chase account, followed by an unauthorized transfer of $1.2 million to RLA the next day. This transfer was disclosed to the Board, leading to a confrontation where Mr. Palazzolo claimed Tobia had agreed to the transaction. The Board demanded the reversal of this transaction, which was completed by July 20, 2015. However, the funds were funneled back to the Condominium only through a third party, F. M. Subsequently, Mr. Palazzolo and Tobia were removed from the Board on December 16, 2015, but Mr. Palazzolo was soon reappointed by RLA and ACC.
Following their ousting, the Board investigated the Reserve and Operating Accounts, revealing that Mr. Palazzolo, along with DiStefano and Santangelo, misused the parking garage similarly to the Reserve Account. The garage was purchased in 2008, and a Garage Account was opened by DiStefano prior to this purchase.
DiStefano was the sole signatory of the Garage Account, and without Board notification, Mr. Palazzolo directed all garage income into this account. DiStefano and Santangelo issued a $32,000 monthly payment to Supreme from this account. Premium Staffing also withdrew a monthly fee for its services, starting at $3,000 in 2008 and increasing to $5,000 by 2010. In October 2010, Premium Staffing began consolidating payments to itself and Supreme, stealthily raising its fee to $7,800, which further increased to $10,800 in February 2011 and $11,800 by September 2011. From 2011 to 2014, Premium Staffing paid itself approximately $873,475 without Board authorization for various expenses.
A "Parking Agreement" proposed in 2014 by Palazzolo and DiStefano allowed Premium Parking to provide valet services, though the actual services were performed by Supreme. This agreement obscured the financial arrangements, with Premium Parking eventually receiving significantly more than outlined before the agreement's termination in 2016. By 2014, payments to Premium Parking and Premium Staffing constituted about 93% of the garage's gross income, leading to a loss of $35,259 in 2014, down from a $225,000 profit in 2009. Premium Staffing did not return profits to the garage when it was profitable. Between 2008 and 2015, approximately $680,964.82 was transferred from the Garage Account to various defendants, including significant sums to individuals and unrelated businesses.
Additionally, Premium Staffing allegedly charged the Condominium $187,600 for handyman services but only paid $30,000 to the handyman, keeping the remainder. Since the replacement of Premium Staffing and Premium Parking in 2016, the Board reported savings of nearly $500,000. Furthermore, a third-party service provider, Quadlogic Corp., mismanaged electricity charges for commercial units owned by ACC and RLA, leading to those units not being billed for their electricity use, thereby passing costs onto the Condominium.
Mr. Palazzolo's removal from the Board revealed that commercial tenants had not been paying utility fees, as he had claimed to cover their electric bills and instructed them to pay him directly. A check he presented supposedly showing a payment of $27,694 to the Condominium for electrical charges was found to be fraudulent, as no such payments occurred. Additionally, ACC refused to remit any owed funds or contribute to maintenance charges, while Mr. Palazzolo and Tobia claimed, without evidence, that the Board had agreed to exempt commercial unit owners from electricity payments. Consequently, they retained over $300,000 received from these tenants instead of paying the Condominium.
In the fall of 2004, Mr. Palazzolo purchased 21 units from the Condominium's sponsor for $21 million, conditioned on the sponsor settling its debts. He declined a five percent discount in favor of requesting an $800,000 contribution to establish a Reserve Account. Mr. Palazzolo alleged that he sacrificed personal business opportunities based on Board representations. In June or July 2009, he gained full control over the Reserve Account and utilized it to benefit the Condominium, though he was not promised compensation. He successfully advocated for an energy supplier change in 2006, allegedly saving the Condominium approximately $1,154,000 over ten years without receiving fees. In July 2007, to hire a resident manager, he sold a unit at a discounted price to facilitate accommodation for the manager’s family and forgave at least $165,000 in interest income for the Board’s benefit.
In 2007, Mr. Palazzolo was approached by the Condominium's sponsor to purchase the garage and recreation center, which would have benefited him financially. However, he advised the Board to acquire these assets from Cappelli instead. The purchase hinged on satisfying the mortgage on the retail spaces, prompting Mr. Palazzolo to acquire the retail spaces through RLA, enabling the Condominium's purchase of the garage and recreation space that year. During his tenure as Treasurer, he implemented a staffing model saving the Condominium at least $1,690,000 over ten years by employing non-union staff without seeking additional management fees. He secured leases generating $570,000 in income for the Condominium, though he did not claim to have personally sacrificed an opportunity for the Board’s benefit. He also purchased cheaper insurance policies, yielding savings of at least $880,000 over a decade without additional compensation. Between 2006 and 2009, he directed the acquisition of foreclosed apartments for the Board, generating $1,020,660.33 in rental income from 2009 to 2015, and a total income of at least $2,470,000 from these units. In October 2012, following Superstorm Sandy, he facilitated emergency repairs for 23 unit owners, incurring personal costs without compensation, using the savings to fund further improvements in the Condominium, totaling costs exceeding the insurance proceeds. The procedural background indicates that the Plaintiff filed a Complaint on November 28, 2016, leading to various pre-motion letters from Defendants seeking its dismissal, with responsive letters filed by the Plaintiff and a pre-motion conference held on May 2, 2017.
A briefing schedule was established by the Court for Overton, ACC, and Reda Romano to file Motions To Dismiss. On May 22, 2017, the Plaintiff voluntarily dismissed claims against Overton, followed by the dismissal of claims relevant to Reda Romano's Motion on July 11, 2017. Reda Romano subsequently filed its Answer and crossclaims on August 8, 2017. ACC filed its Motion on June 16, 2017, while various Defendants, after receiving an extension, filed their Answers and Counterclaims on August 22, 2017. The Palazzolo group also filed their Answers and Counterclaims on the same date. All Defendants responded to Reda Romano's crossclaims by August 28, 2017. The Plaintiff answered Premium Staffing's counterclaim and submitted a pre-motion letter regarding the Palazzolo counterclaims, which were responded to on September 15, 2017. Remaining Defendants, excluding the Palazzolo group, requested to file a Motion for Judgment on the Pleadings, joined by the Palazzolo Defendants later. The Court allowed parties to amend their complaints and counterclaims by November 22, 2017. The Plaintiff filed an Amended Complaint on November 21, 2017, with the Palazzolo Defendants submitting their answer and counterclaims the following day. Reda Romano filed its answer and crossclaim on December 12, 2017, with Defendants responding shortly after. Defendants filed pre-motion letters seeking to dismiss the Plaintiff's Amended Complaint, to which the Plaintiff responded in December 2017. The Court held a conference on January 18, 2018, adopted a new briefing schedule, and required all parties to refile their Motions by February 16, 2018, with subsequent opposition and reply deadlines. Defendants filed their Motions on February 16, 2018, including ACC and the Plaintiff's Motion to dismiss the Palazzolo counterclaims.
On March 16, 2018, the Plaintiff submitted oppositions to the ACC Motion (Dkt. No. 147) and the Tobia Defendants' Motion (Dkt. No. 148). On the same day, the Palazzolo Defendants also filed their opposition to the Plaintiff's Motion (Dkt. No. 149). ACC and the Tobia Defendants filed their replies on March 29, 2018 (Dkt. No. 152), and March 30, 2018 (Dkt. No. 154), respectively, while the Plaintiff submitted its reply on March 30, 2018 (Dkt. No. 153).
The discussion section outlines the standard of review for motions to dismiss. According to the Supreme Court, a complaint must provide more than just labels or conclusions to survive such motions. It must contain factual allegations sufficient to establish a plausible claim for relief, moving beyond mere speculation. The court must accept all factual allegations in the complaint as true and draw reasonable inferences in favor of the Plaintiff. Furthermore, in evaluating a motion to dismiss under Rule 12(b)(6), the court is limited to considering the facts stated in the complaint, documents attached to it, and matters subject to judicial notice. This standard applies equally to counterclaims under Rule 12(b)(6).
A motion to dismiss counterclaims under Rule 12(b)(6) is evaluated using the same standard as motions to dismiss claims in a complaint. The Amended Complaint asserts that all Defendants, except Reda Romano, are part of the "Palazzolo Enterprise" and have violated the Racketeer Influenced and Corrupt Organizations (RICO) Act, specifically 18 U.S.C. § 1962(c) and § 1962(d), and that they aided and abetted a breach of fiduciary duty by Mr. Palazzolo. The Plaintiff also claims state law violations including conversion, unjust enrichment, and aiding and abetting fiduciary breaches.
For the RICO claim under § 1962(c), it is illegal for individuals associated with an enterprise engaged in interstate commerce to participate in the enterprise's affairs through racketeering. To prove a civil violation, the Plaintiff must demonstrate the existence of (1) conduct, (2) an enterprise, (3) through a pattern, and (4) racketeering activity. The Amended Complaint identifies the "Palazzolo Enterprise" as an association-in-fact, consisting of all Defendants except Reda Romano, which is characterized by a common purpose and is evidenced by an ongoing organization.
An association-in-fact must have three structural features: (1) a purpose, (2) relationships among those involved, and (3) sufficient longevity to pursue the enterprise's goals. The Court must address the Tobia Defendants' argument regarding the claim's failure due to a lack of distinctness, which requires the presence of two distinct entities: a 'person' and an 'enterprise' that are not merely the same entity referred to differently. The statute specifies that the term 'person' pertains to individuals associated with the 'enterprise.'
A civil RICO claim can name a 'person' as the defendant, not the 'enterprise.' A violation occurs when a person conducts an enterprise through a pattern of criminality. The Tobia Defendants argue that because all members of the alleged enterprise are also named as defendants, they cannot be considered distinct, misunderstanding the distinctness requirement. The law mandates that the same entity cannot be both the person and the enterprise. However, defendants can collectively form an enterprise. The Second Circuit has established that an individual and different corporations can be liable under RICO, as they can be RICO persons and members of a RICO enterprise. Distinctness is satisfied if the enterprise is separate from the individuals involved, as seen in various cases. The Tobia Defendants' cited case acknowledges the possibility of an entity being both a RICO person and part of a RICO enterprise, provided the distinctness requirement is met. The plaintiff asserts that the named defendants, including individuals and businesses, form the "Palazzolo Enterprise," which is alleged to have engaged in racketeering activities.
Plaintiff claims that members of the Palazzolo Enterprise conspired to conduct, finance, and acquire ownership interests through racketeering, misappropriating the Condominium's funds for personal business activities. The defendants are identified as a group associated with the enterprise aimed at ongoing acts of theft and fraud against the Condominium. The Amended Complaint does not assert that all members operate under a unified corporate structure, as established in Discon v. Nynex Corp. The Court notes that while many corporate entities share an address and Mr. Palazzolo's control over several, the allegations do not indicate identical ownership or employee structures among the entities. The complaint describes the enterprise as comprising distinct individuals and corporations rather than a single corporate entity with its employees. Therefore, the Amended Complaint sufficiently establishes distinctness for a RICO enterprise. Additionally, defendants argue that the complaint lacks allegations of personal involvement in RICO predicate acts by anyone other than Mr. Palazzolo.
The document highlights the failure of the Plaintiff to specifically identify any predicate acts committed by the Defendants in relation to alleged RICO violations. Defendants argue that the Plaintiff's collective allegations do not meet the particularity requirement outlined in Rule 9(b), which necessitates that each RICO defendant must be shown to have committed at least two predicate acts of racketeering within the last ten years. The heightened pleading standard of Rule 9(b) applies to claims involving fraud, requiring detailed allegations of the circumstances constituting the fraud.
In the context of civil RICO claims, all allegations concerning fraudulent predicate acts must adhere to this heightened standard. This includes mail, wire, and bank fraud allegations, as well as conduct under the National Stolen Property Act (NSPA). The essential elements of mail or wire fraud are outlined, requiring a scheme to defraud, the object being money or property, and the use of mails or wires to advance the scheme. Plaintiffs are expected to plead with particularity, detailing the contents of communications, parties involved, and the context of the alleged fraud.
However, in certain complex civil RICO cases, the Second Circuit allows for a less stringent standard, whereby the specific details of each communication do not need to be provided if it can be demonstrated that the communications were part of a broader fraudulent scheme. Instead, the Plaintiff must sufficiently describe the overall fraudulent scheme's circumstances within the complaint.
In P.C. v. Law Offices of David M. Bushman, Esq., the court addresses the pleading standards under Rule 9(b) for claims involving mail or wire fraud. It establishes that when plaintiffs claim that mail or wires were used to further a fraudulent scheme, specificity regarding the mailings is not required, provided the overall fraudulent scheme is sufficiently detailed to inform the defendants. Courts have recognized a different pleading standard for allegations in furtherance of fraud, emphasizing that the use of mail need not be an essential element of the fraud, but merely incidental to it. The rationale for this leniency is that mailings related to the fraud do not constitute fraud allegations per Rule 9(b) and that the purpose of the rule is fulfilled when a broader scheme is adequately pleaded. However, when multiple defendants are involved, the complaint must clearly specify each defendant's alleged involvement in the fraud. Generic references to "defendants" without individual attribution do not satisfy Rule 9(b), as complaints must delineate specific actions attributable to each defendant to meet the particularity requirement.
In cases involving multiple defendants, Rule 9(b) mandates that plaintiffs specify each defendant's role in the alleged fraud. This requirement aims to ensure defendants receive fair notice of claims, protect their reputation from baseless fraud allegations, and minimize frivolous lawsuits. The allegations in the Complaint regarding mail and wire fraud meet this requirement for each defendant. Santangelo and DiStefano, who held management positions in Premium Parking and Premium Staffing, are accused of improperly charging the Condominium fees for managing the Garage Account from 2007 to 2014 without Board authorization. They allegedly paid themselves $873,475 during this period for minimal services and presented a "Parking Agreement" that led to excessive payments from the Condominium in subsequent years. The Complaint claims that these defendants misappropriated funds from the Condominium by diverting unauthorized fees and redistributing the garage's profits among members of the Palazzolo Enterprise, totaling $680,964.82 transferred from 2008 to 2015. Additionally, Thomas, associated with the Premium entities, received $72,400 through fifteen transactions and notarized an agreement for a $187,600 payment to Gomez without being present at the signing. Reitano is also implicated for his role in Ridgeview LLC, which engaged in unauthorized transfers of the Condominium's funds to Ridgeview and other entities within the Palazzolo enterprise.
Reitano allegedly circulated notices in the Condominium about available refund checks and distributed them directly to unit owners. However, he and Palazzolo are accused of knowingly withholding tax certiorari refunds for 17 unit owners. Tobia is claimed to have controlled several entities integral to the Palazzolo Enterprise and facilitated a fraudulent transfer of $400,000 from the Condominium to RLA, intending for the funds to be redirected to Palazzolo and F. M. Tobia did not recuse himself from voting on this transfer despite his self-interest. Together, Tobia and Palazzolo misrepresented the 2010 RLA Loan as secure, while actually conspiring to disguise the transfer of reserve funds to inflate F. M.'s value for financing purposes related to Ridgeview, a real estate investment they managed. Allegations indicate that Ridgeview LLC, RLA, and First Resource received substantial amounts of allegedly stolen funds under Tobia's control. While ACC is not alleged to have acted independently, it is claimed that Palazzolo and Tobia misrepresented their ownership and control over ACC, deceiving the Board regarding electricity payments. They purportedly told ACC's tenants to pay them directly for electrical costs, which were never actually paid, resulting in over $300,000 being misappropriated from the Condominium. The excerpt notes that for vicarious liability under RICO to be imposed, plaintiffs must demonstrate that corporate officers had knowledge of or were recklessly indifferent to unlawful activities, as established in relevant case law.
Courts evaluate various factors in racketeering cases, including the number of high-level employees involved, their participation level, whether they committed predicate acts, and if the corporation benefited from the activities. The Plaintiff alleges that Mr. Palazzolo and Tobia claimed control over ACC and engaged in racketeering by knowingly diverting funds due to the Condominium. The Plaintiff asserts that ACC participated in these acts and has not returned over $300,000 allegedly misappropriated. This establishes a basis for a RICO claim against ACC through vicarious liability, as ACC is viewed as benefiting from the scheme and the individual defendants controlled it.
Regarding wire and mail fraud claims, it suffices for the Plaintiff to demonstrate that each defendant participated and could foresee the use of mails in the scheme. In complex RICO cases, Rule 9(b) does not require detailed specificity of each mailing or wire transmission but mandates adequate delineation of the fraudulent scheme's circumstances. The Amended Complaint alleges direct participation from each defendant, with a reasonable expectation that mails and interstate wires would support the scheme. A defendant can be held liable for causing a mailing if they could foresee its occurrence, even if a third party ultimately executed it.
The Court determines that the Plaintiff has adequately met the requirements under Rule 9(b) regarding mail and wire fraud allegations against the Defendants, supported by specific accusations against each Defendant. The Defendants' challenge regarding their participation in the operation or management of the alleged RICO enterprise is addressed through the Supreme Court's ruling in Reves v. Ernst & Young, which clarifies that individuals must have a role in directing the enterprise's affairs to be liable under RICO. The Second Circuit typically establishes a low threshold for plaintiffs at the pleading stage, requiring only some involvement in directing the enterprise, rather than primary responsibility or formal titles.
The Plaintiff has presented sufficient evidence that each Defendant played a role in directing the enterprise's affairs. Notably, Santangelo and DiStefano are accused of improperly paying themselves significant sums from the Condominium's funds for minimal services. Premium Parking also allegedly overpaid itself in 2015 and 2016. Additionally, various Defendants, including Reitano, Tobia, RLA, First Resource, and Ridgewood LLC, are implicated in unauthorized transfers of the Condominium's funds and facilitating the receipt of allegedly stolen funds. Consequently, at this stage, the Plaintiff has adequately demonstrated that the individual Defendants not only provided essential services to the enterprise but also exercised discretion in its operations. The Court also notes that the Defendants argue the Complaint inadequately pleads a RICO conspiracy claim under 18 U.S.C. § 1962(d).
It is unlawful for any person to conspire to violate the provisions of 18 U.S.C. § 1962, specifically § 1962(d). The defendants' argument against the RICO conspiracy claim fails since the court has not dismissed the substantive RICO claim, affirming the viability of the conspiracy claim as well. The defendants contend that the allegations are too vague; however, a plaintiff must only plead that a defendant agreed to participate in the enterprise's activities through a pattern of racketeering. A specific agreement to commit two predicate acts is not required; a defendant can be found liable if they committed at least two acts of racketeering and knew of and agreed to facilitate the scheme. Knowledge of the general criminal objective of the conspiracy suffices for liability. The court will examine the allegations under the liberal pleading standards of Rule 8(a). Although the plaintiff's claims are somewhat conclusory, they are supported by additional factual allegations suggesting an agreement among the defendants to engage in a conspiracy. It is asserted that each defendant participated in the affairs of the Palazzolo Enterprise through racketeering activities, which reinforces the inference of a conspiratorial agreement. The court has determined that the plaintiff has adequately alleged knowledge of the conspiracy based on the defendants' roles within the enterprise and their respective actions.
Individual defendants, due to their roles within the alleged racketeering enterprise, were deemed aware of the conspiracy's general nature and actively contributed to its advancement. In *Crabhouse of Douglaston Inc.*, the court denied a motion to dismiss a RICO conspiracy claim, reasoning that a jury could reasonably conclude that the defendants agreed to participate in a scheme whose objectives they understood. Similarly, in *Metro. Transp. Auth. v. Contini*, another motion to dismiss was denied based on allegations that an individual defendant, overseeing daily operations, possessed sufficient knowledge of the corporate wrongdoing. In *State Farm Mut. Auto. Ins. Co. v. CPT Med. Servs. P.C.*, the court upheld a conspiracy claim against defendants alleged to have supported racketeering activities, such as mailing fraudulent documents.
The amended complaint asserts that each defendant benefited financially from their involvement in the scheme, including profits derived from their actions. Specific allegations detail how Thomas conspired with others to finance the Palazzolo Enterprise, with Premium Staffing distributing profits generated by a garage operation. It is claimed that Palazzolo, DiStefano, and Santangelo misappropriated funds from a condominium through unauthorized fees and profit distributions. The complaint also suggests that multiple defendants received or facilitated the receipt of funds stolen from the condominium, supporting an inference of their knowing participation in the conspiracy.
Legal precedents indicate that a defendant's anticipated compensation from a conspiracy can imply knowledge and acceptance of its goals, reinforcing the notion that participation in a conspiracy can be inferred from expected profit-sharing. Consequently, the court denied motions to dismiss the conspiracy claim, affirming that the defendants conspired to commit mail fraud to extort money from the plaintiffs, were aware of the conspiracy's nature, and had not distanced themselves from their co-conspirators.
The Plaintiff has sufficiently stated a RICO conspiracy claim against all defendants according to Rule 8(a)’s liberal pleading standards. ACC seeks to dismiss the Plaintiff's claims for conversion, unjust enrichment, money had and received, and aiding and abetting breach of fiduciary duty, arguing these claims are merely duplicative of a breach of contract claim. However, the Plaintiff has not alleged any breach of contract against ACC, which is only directed at Reda Romano, nor has any contract been identified or attached in the pleadings or motions. As such, the fraud claim is not duplicative, and Rule 8(d) permits alternative pleading, allowing the Plaintiff to challenge the validity of a hypothetical contract while also alleging unjust enrichment. Even if a contract existed, unjust enrichment can be pled in the alternative when challenging its validity. The absence of a claimed enforceable contract means equitable remedies like unjust enrichment, conversion, or money had and received are not precluded. Therefore, the unjust enrichment claim should not be dismissed, particularly since the Plaintiff has alleged that ACC's owners, Mr. Palazzolo and Tobia, knowingly allowed ACC to avoid paying for electricity, unfairly shifting the costs to the Condominium and its owners.
No payments for electricity were made by Mr. Palazzolo, Tobia, or ACC to the Condominium, which ACC is obligated to pay. Plaintiff asserts claims of conversion and unjust enrichment against ACC, arguing that ACC wrongfully withheld funds belonging to the Condominium. To establish conversion, a plaintiff must demonstrate that the property is identifiable, that they had prior ownership or control, and that the defendant exercised unauthorized control over it. For unjust enrichment, the plaintiff must show that the defendant was enriched at their expense under circumstances that warrant compensation.
The Court finds that Plaintiff has sufficiently alleged claims of unjust enrichment, conversion, and money had and received, as ACC's withholding of funds harmed the Condominium, the rightful owner. The Court denies ACC's motion to dismiss these claims.
Regarding the aiding and abetting breach of fiduciary duty, ACC contends that Plaintiff fails to demonstrate how ACC aided Mr. Palazzolo in breaching his fiduciary duty. However, Plaintiff has established that Mr. Palazzolo breached his duty as treasurer by allowing ACC to avoid electricity charges, which were instead borne by the Condominium. Plaintiff alleges that Mr. Palazzolo misled ACC’s tenants regarding payment arrangements, resulting in ACC keeping the funds intended for the Condominium. The Court concludes that sufficient facts have been presented to suggest that ACC had actual knowledge of Mr. Palazzolo's breach of fiduciary duty.
Plaintiff alleges that Mr. Palazzolo was one of two controlling members of ACC and that ACC knowingly participated in Mr. Palazzolo's breach of fiduciary duty by intentionally withholding over $300,000 owed to the Condominium for electrical charges. As a result, ACC's motion to dismiss the aiding and abetting breach claims is denied. Mr. Palazzolo has counterclaimed for unjust enrichment and promissory estoppel, which the Plaintiff seeks to dismiss on several grounds including waiver and timeliness.
To establish unjust enrichment, a plaintiff must show that the defendant was enriched at the plaintiff's expense and that it would be inequitable for the defendant to retain that benefit. Mr. Palazzolo claims he acted on behalf of the Board without expectation of compensation, highlighting that he sacrificed personal business opportunities and aimed to benefit the Board and the Condominium. However, his counterclaims do not indicate an expectation of compensation, which is a requirement under New York law for unjust enrichment claims. Thus, the focus remains on whether it is against equity and good conscience to allow the defendant to keep the benefits in question.
Mr. Palazzolo's Counterclaims assert that he engaged in transactions for the benefit of the Board and the Condominium with the understanding that he would not receive compensation. He was authorized to manage the Reserve Account to enhance its value, agreeing not to collect past interest on the unit to benefit the Board and the Condominium. He recommended that the Board acquire the Rec Deck and Garage and utilized personal contacts for emergency repairs without seeking payment or commissions. Mr. Palazzolo claims he had broad authority from the Board to act in their interest, implying that he sacrificed personal profit opportunities willingly. His attempt to recover profits for these opportunities, despite having no expectation of compensation, is viewed as an attempt to alter the terms post-factum, which equity does not support. The document references case law indicating that without a reasonable basis for expecting compensation, restitution principles do not apply, leading to the dismissal of his unjust enrichment counterclaim.
Additionally, for the promissory estoppel claim, New York law requires a clear promise, reasonable reliance, and an injury due to that reliance. Vague or indefinite promises are not actionable under this theory. These elements highlight the necessity for clarity in promises for them to be enforceable.
To invoke promissory estoppel against the Statute of Frauds, a plaintiff must show unconscionable injury—beyond typical expectation damages—from the non-performance of an unenforceable agreement. The court finds the promise cited in Mr. Palazzolo's Counterclaims vague and indefinite, lacking clear parameters on his authority to act in the Board's interest. Although Mr. Palazzolo was granted broad discretion, the Board's termination of his position in September 2015 raises questions about how that promise was repudiated. The pleadings indicate he had control over transactions while serving as treasurer and Board member, but the termination logically nullifies his authority thereafter. Even if Mr. Palazzolo met the first two elements of promissory estoppel, he failed to demonstrate unconscionable injury, as his claims revolve around typical business losses rather than extraordinary circumstances. Courts have historically rejected such claims when injuries consist of lost profits or opportunities, which aligns with Mr. Palazzolo's allegations. Thus, his claims lack a sufficient basis for promissory estoppel.
Mr. Palazzolo did not realize potential financial benefits from specific transactions due to his operations for another party's benefit, resulting in what is termed the "Palazzolo Loss," which quantifies the value of unpursued business opportunities. Although he incurred losses related to these missed opportunities, he had no expectation of payment for his services, which undermines any claim of promissory estoppel under the Statute of Frauds. New York law establishes that injuries from forgoing career opportunities do not qualify as unconscionable for such claims. Consequently, the motion to dismiss the promissory estoppel counterclaim is granted.
Additionally, the Plaintiff seeks to strike 20 affirmative defenses from the Palazzolo Defendants, all concerning the legal sufficiency of the RICO claims. The standard for a motion to strike mirrors that of a motion to dismiss for failure to state a claim. Under Federal Rule of Civil Procedure 12(f), courts can strike insufficient defenses but generally disfavor such motions unless there are no factual or legal questions that could allow the defense to succeed, and if the Plaintiff would be prejudiced by the defense's inclusion. The burden lies with the Plaintiff to meet these criteria for a successful motion to strike.
In the case United Specialty Ins. Co. v. Fisk Fine Art Servs. LLC, the court found that increased trial costs could justify granting a plaintiff's motion to strike under Rule 12(f). However, a motion to strike for insufficiency should not address disputed legal questions, especially without significant discovery. The plaintiff contended that the Palazzolo Defendants' counterclaims were not true affirmative defenses but mere arguments irrelevant to their motion to dismiss. The court clarified that including a failure-to-state-a-claim defense as an affirmative defense is standard practice and not prejudicial, even if redundant. The court noted that the length of the Palazzolo Defendants' arguments did not affect the validity of their defenses, which essentially denied the plaintiff's claims. Consequently, the court denied the plaintiff's motion to strike these affirmative defenses. Additionally, the court denied the Tobia Defendants' and ACC's motions to dismiss. However, it granted the plaintiff's motion to dismiss Mr. Palazzolo's counterclaims for unjust enrichment and promissory estoppel with prejudice. The court rejected ACC's argument that the RICO claim was a breach of contract claim, as the plaintiff did not allege a contractual relationship with ACC or resulting damages, but instead claimed ACC was aware of improper meter tracking and withheld information from the plaintiff, depriving them of funds. The Clerk was instructed to terminate the pending motions.
Concealment by the defendant was intended to evade detection and prosecution for illegal activities and was part of a consistent pattern aimed at furthering the conspiracy’s criminal objectives, potentially qualifying as a RICO predicate act. The evidence indicated that this behavior was likely to persist without external intervention. The plaintiff successfully pled two RICO predicates: wire fraud and mail fraud, negating the need to evaluate additional allegations of bank fraud or violations of the National Stolen Property Act (NSPA). The court determined that the Third Amended Complaint met the racketeering element requirements based on the alleged acts, rendering further examination of other predicate acts unnecessary. The court referenced relevant cases that affirmed the adequacy of mail or wire fraud claims while noting that none of the Moving Defendants addressed the allegations of bank fraud or NSPA violations. The "operation and management" test for RICO claims was acknowledged as a challenging standard, although in the Second Circuit, it is typically easier to meet, particularly at the pleading stage. The defendants’ argument concerning this test was abandoned in their reply. Additionally, the Tobia Defendants’ challenge to the substantive claims against Mr. Palazzolo was based solely on the underlying RICO violations, but the court did not need to address this since the plaintiff sufficiently pled a RICO violation under § 1962(c).
Defendants lack standing to move to dismiss substantive claims not asserted against them, as established in Gordon v. Sonar Capital Mgmt. LLC. The Court rejects the defendants' arguments to dismiss state law claims aimed solely at unnamed 'John Doe' defendants, emphasizing that a party can only file a Rule 12(b) motion regarding claims asserted against it. As such, the Court will not consider the merits of claims against Mr. Palazzolo, as he is only named in Count I. The Statute of Frauds applies to the alleged oral promise made to Mr. Palazzolo, rendering unenforceable any unwritten agreements that cannot be completed within one year. Contracts of indefinite duration fall under this statute, as illustrated in Andrews v. Sony/ATV Music Publishing, LLC and In re Bayou Hedge Fund Litig. The counterclaims allege that Mr. Palazzolo was granted "full and complete control over the Reserve Account" by the Board with no specified end date or termination provisions, indicating an indefinite delegation of authority. This broad mandate supports his promissory estoppel claim, which asserts that this authorization was abruptly ended in 2015. The Court notes that the agreement, as pled, implies a perpetual obligation, thereby satisfying the conditions of the Statute of Frauds. Since Mr. Palazzolo's unjust enrichment and promissory estoppel claims have already been dismissed on their merits, the Court will not address the argument regarding their timeliness.
