Petroff Amshen LLP v. Alfa Rehab PT PC

PETROFF AMSHEN LLP, Plaintiff, v. ALFA REHAB PT PC, et al., Defendants.

19-CV-1861 (MKB) (RML)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

March 15, 2021

MEMORANDUM & ORDER

MARGO K. BRODIE, United States District Judge:

Plaintiff Petroff Amshen LLP commenced the above-captioned action against more than seventy Defendants on April 1, 2019, asserting federal claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C § 1962 et seq., and state law claims for fraud and unjust enrichment.¹ (Compl. ¶¶ 132-1452, Docket Entry No. 1.) Several defendantsincluding the Alfa Rehab Defendants,² Brunswick Bank & Trust Company ("Brunswick Bank"), Cambridge Clarendon Financial Services, LLC ("Cambridge"),³ the Granovsky Defendants,⁴ theNBC Health Defendants,⁵ Eye On Well-Being Acupuncture PC ("EOWBA"),⁶ the Podhayetska Defendants,⁷ the Diamond Defendants,⁸ and the Lavelle Defendants⁹ moved to dismiss the Complaint pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure for lack of subject-matter jurisdiction and failure to state a claim. On October 28, 2019, the Court referred Defendants' motions to Magistrate Judge Robert M. Levy for a report and recommendation. (Order dated Oct. 28, 2019; Order dated Nov. 4, 2019.)

By report and recommendation dated December 14, 2020, Judge Levy recommended that the Court grant Defendants' motion to dismiss (the "R&R"). (R&R, Docket Entry No. 205.) On December 21, 2020, Plaintiff timely filed objections to the R&R. (Pl.'s Obj. to R&R ("Pl.'s Obj."), Docket Entry No. 206.)¹⁰ For the reasons set forth below, the Court grants Defendants' motions to dismiss and adopts the R&R as modified herein.

I. Background

The Court assumes familiarity with the underlying facts as detailed in the R&R and provides only a summary of the procedural history and pertinent facts. The Court assumes the truth of the factual allegations in the Complaint for the purposes of this Memorandum and Order.

a. Factual background

On April 1, 2019, Plaintiff commenced this action against Defendants, alleging violations of RICO, 18 U.S.C § 1962 et seq., and state law claims for fraud and unjust enrichment. (Compl. ¶¶ 132-1452.) Plaintiff alleges that Defendants — comprised of primarily chiropractors, physical therapists, and acupuncturists in New York and New Jersey — engaged in a "criminal enterprise" to launder "illicitly obtained sums in excess of $600,000" by fraudulently using Plaintiff's name and reputation unbeknownst to Plaintiff. (Id. at 1.) Defendants "generated more than 120 negotiable instruments, issued and signed by the Defendants . . . all made payable to [Plaintiff]." (Id. ¶ 3.) Defendants distributed these checks amongst themselves — not to Plaintiff — and endorsed the checks by forging Plaintiff's signature. (Id.) Defendants presented the checks to Cambridge, which "endorsed the checks to pay to the order of Brunswick Bank." (Id. ¶¶ 3, 13.) Plaintiff alleges that this allowed Defendants to transfer money "from their corporate accounts that [was] then converted to liquid assets, i.e., cash." (Id. ¶ 4.) Defendants also "created false W-9 forms claimed to be issued by [Plaintiff] to [Defendants] and used the same to hold themselves out as having authority to act on behalf of [Plaintiff]." (Id. ¶ 6.) Defendants wrote "legal fees" or "legal services" on the memo line of the checks. (Id.)

Plaintiff states that it had "absolutely no knowledge of the entire enterprise." (Id. ¶ 5.) Plaintiff did not receive any calls to verify whether the individuals depositing the checks were associated with Plaintiff. (Id. ¶ 8.)

b. Procedural history

Between August 30, 2019 and November 21, 2019, the Alfa Rehab Defendants, Brunswick Bank, Cambridge, the Granovsky Defendants, the NBC Health Defendants, EOWBA, the Podhayetska Defendants, the Diamond Defendants, and the Lavelle Defendants moved to dismiss the Complaint for lack of subject-matter jurisdiction and failure to state a claim.¹¹ Plaintiff opposed the motions. (Pl.'s Opp'n to Mots. to Dismiss ("Pl.'s Opp'n"), Docket Entry No. 166.) On October 28, 2019, the Court referred the pending motions to dismiss to Judge Levy for a report and recommendation. (See Order dated Oct. 28, 2019; Order dated Nov. 4,2019.) On January 22, 2020, Judge Levy heard oral argument on the motions to dismiss. (Min. Entry dated Jan. 22, 2020; Tr. of Oral Arg. before Judge Levy dated Jan. 22, 2020 ("Oral Arg. Tr."), Docket Entry No. 175.)

On March 9, 2020, Judge Levy held a status conference and the parties requested that the Court not decide the pending motions to dismiss until after the next settlement conference, (Min. Entry dated Mar. 9, 2020), and on March 12, 2020, the Court stayed the pending motions with leave to reinstate at any party's request, (Order dated Mar. 12, 2020). On June 24, 2020, Judge Levy held a status conference during which the parties updated the status of their settlement discussions. (Min. Entry dated June 24, 2020.) Counsel informed Judge Levy that Plaintiff reached a settlement with some of the Defendants and was at an impasse with the other Defendants. (Id.) Counsel for the non-settling Defendants requested that their motions be reinstated and decided. (Id.) After the status conference, several Defendants filed letters requesting that their motions be reinstated, (collectively, the "Moving Defendants").¹²

c. Report and recommendation

Judge Levy recommended that the Court grant Moving Defendants' motions to (1) dismiss Plaintiff's federal civil RICO claim, (2) decline to exercise supplemental jurisdiction over Plaintiff's state law unjust enrichment and fraud claims or, in the alternative, dismiss those claims for failure to state a claim, and (3) dismiss Plaintiff's claim for declaratory judgment for failure to state a claim. (R&R 18-19.)

i. RICO claims

In the R&R, Judge Levy considered whether Plaintiff met its "two pleading burdens" to assert a civil RICO claim: (1) whether Plaintiff "allege[d] that . . . [D]efendant[s] violated thesubstantive RICO statute, 18 U.S.C. § 1962," and (2) whether Plaintiff alleged injury to his business or property "by reason of a violation of section 1962" — the equivalent of proximate cause. (Id. at 5 (first quoting Lerner v. Fleet Bank, N.A., 459 F.3d 273, 283 (2d Cir. 2006); and then quoting Moss v. Morgan Stanley, Inc., 719 F.2d 5, 17 (2d Cir. 1983)).) Because Judge Levy found that Plaintiff failed to plead both injury and causation by way of any alleged violation, and a violation of the RICO statute, Judge Levy recommended that the Complaint be dismissed. (Id. at 15.)

First, Judge Levy found that Plaintiff failed to plead injury and proximate cause because Plaintiff only asserted that its name and reputation was "sullied by the conduct of . . . Defendants," that it "lost considerable and concrete business opportunities," that it lost "an amount anywhere between $250,000 to $500,000 in revenue" due to its damaged reputation, and that "it has been unable to retain any new no-fault provider clients . . . because said potential clients have indicated an unwillingness to 'be associated with and/or presented by a firm whose reputation was sullied and marred by an involvement with a fraudulent check cashing and money laundering scheme.'" (Id. at 8.) Judge Levy found that these injuries were not sufficient to allege injury under RICO because they were merely claims of "speculative reputational harm and possible future tax consequences" and Plaintiff did not put forth facts to demonstrate that the lost income was "directly caused by [D]efendants' alleged racketeering activity." (Id. at 9.) In addition, Judge Levy found Plaintiff's claim of "potential" tax penalties should the checks be imputed as income to Plaintiff "wholly theoretical" since neither the Internal Revenue Service (the "IRS") nor any state tax authority is alleged "to have actually imposed a tax penalty on [P]laintiff relating to the forged checks." (Id.)

Next, Judge Levy assessed whether Plaintiff sufficiently pled that Defendants "(1) participat[ed] in conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity" as required to plausibly allege violation of the RICO statute. (Id. at 9 (citing Sedima v. Imrex Co., 473 U.S. 479, 496 (1985); Reich v. Lopez, 858 F.3d 55, 59 (2d Cir. 2017)).) As to the "enterprise" prong, Judge Levy found that the Complaint did not allege that Defendants "agreed to participate with each other in a criminal enterprise," that "any of them directed the affairs of the alleged racketeering enterprise," or that any Defendants "were even aware of each other's existence," which is not sufficient to demonstrate an enterprise for purposes of a RICO violation. (Id. at 10-11.)

As to the "pattern" of racketeering activity prong, Judge Levy found that Plaintiff did not plead with the requisite particularity the RICO predicate acts of mail and wire fraud because Plaintiff did not "provide . . . detail about each individual defendant's alleged role in the purported enterprise, or about the alleged scheme to defraud, that RICO requires." (Id. at 12.) Instead, Plaintiff only accused all Defendants collectively of "forging the 120 negotiable instruments at issue." (Id.) Judge Levy also found that Plaintiff failed the "pattern" prong because Plaintiff failed to plead that Defendants' predicate acts amounted to or otherwise constituted a threat of continuing racketeering activity. (Id. at 12-13.) Judge Levy found that Plaintiff failed to demonstrate an open-ended pattern of continuity — that is, "past conduct that by its nature projects into the future with a threat of repetition" — because "[a] fraudulent scheme that targets a single business" is inherently terminable. (Id. at 13-14 (quoting GICC Cap. Corp. v. Tech. Fin. Grp., Inc., 67 F.3d 463, 466 (2d Cir. 1995)).) Judge Levy also found that Plaintiff failed to plead a closed-ended pattern of continuity — that is, "a finite,...