Secure Source Claims Co. v. Miller

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SECURE SOURCE CLAIMS COMPANY, LLC, Plaintiff, v. EDWARD F. MILLER, FINE CRAFTSMAN GROUP, LLC, USDG, LLC, ROE SITE MANAGEMENT, LLC, MICHAEL PIUMELLI, GIOVANNA BATTAGLIA, MARGARET MILLER, KEVIN ROE, SEGOVIA CONSTRUCTION LLC, KRZYSZTOF POGORZELSKI, JOSE SEGOVIA, SAMANTHA BUSTAMANTE, ERIC SCOTT and ROMO MACHINE, LLC, Defendants.

No. 22-CV-9764 (JGLC) (OTW)

United States District Court, S.D. New York

March 29, 2024

OPINION AND ORDER

JESSICA G. L. CLARKE, UNITED STATES DISTRICT JUDGE:

Plaintiff Secure Source Claims Company, LLC (“Plaintiff” or “SSCC”), as assignee of claims of 125 Broad CHP (“125 CHP”), brings this action alleging substantive violations of the Racketeer Influence and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962(c), conspiracy to violate RICO, 18 U.S.C. § 1962(d), as well as state law claims for fraud, aiding and abetting fraud, conspiracy to commit fraud, conversion aiding and abetting conversion, breach of fiduciary duty diversion of trust assets and unjust enrichment. See ECF No. 47 (“First Amended Complaint” or “FAC”). Two groups of Defendants moved to dismiss the Complaint. The first motion to dismiss (ECF No. 100) was filed by Fine Craftsman Group, LLC (“FCG”) Krzysztof Pogorzelski and Eric Scott (collectively, the “FCG Defendants”). The second motion to dismiss (ECF No. 105) was filed by Edward F. Miller, USDG, LLC, Michael Piumelli, Segovia Construction LLC, Jose Segovia and Samantha Bustamante (collectively, the “Miller Defendants”).

This case is referred to Magistrate Judge Wang for general pretrial purposes and dispositive motions requiring a report and recommendation. ECF No. 20. On February 22, 2024, Judge Wang recommended that both motions to dismiss be denied in their entirety. ECF No. 138 (“R&R”) at 15. On March 11, 2024, the FCG Defendants timely filed an objection to the R&R. ECF No. 142. The Miller Defendants neither filed a reply brief in support of their motion nor an objection to the R&R. For the reasons stated herein, the R&R is ADOPTED in part and REJECTED in part. The Miller Defendants' motion to dismiss is DENIED, and the FCG Defendants' motion to dismiss is GRANTED in part and DENIED in part.

LEGAL STANDARDS

The Court sets forth the legal standards governing review of a magistrate judge's report and recommendation and a motion to dismiss for failure to state a claim.

I. Review of Report and Recommendation

A district court reviewing a magistrate judge's report and recommendation may “accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge.” 28 U.S.C. § 636(b)(1)(C). Within fourteen days after the magistrate judge has issued their report and recommendation, “any party may serve and file written objections to such proposed findings and recommendations.” Id.; see also Fed.R.Civ.P. 72(b)(2). A district court reviews de novo the portions of the report and recommendation to which objection is made. 28 U.S.C. § 636(b)(1)(C); Fed.R.Civ.P. 72(b)(3); see also Ortiz v. Barkley, 558 F.Supp.2d 444, 451 (S.D.N.Y. 2008). For portions of the report and recommendation to which no timely objection has been made, “a district court need only satisfy itself that there is no clear error on the face of the record.” Fischer v. Forrest, 286 F.Supp.3d 590, 600 (S.D.N.Y. 2018), aff'd, 968 F.3d 216 (2d Cir. 2020) (internal citation omitted). “To the extent that the objecting party makes only conclusory or general objections, or simply reiterates the original arguments, the court will review the report and recommendation strictly for clear error.” Giallanzo v. City of New York, 630 F.Supp.3d 439, 450 (S.D.N.Y. 2022). Finally, “new arguments and factual assertions cannot properly be raised for the first time in objections to the report and recommendation, and indeed may not be deemed objections at all.” Piligian v. Icahn Sch. of Med. at Mount Sinai, 490 F.Supp.3d 707, 716 (S.D.N.Y 2020) (internal citation omitted).

II. Motion to Dismiss

In reviewing a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the Court must “constru[e] the complaint liberally, accepting all factual allegations in the complaint as true, and drawing all reasonable inferences in the plaintiff's favor.” Goldstein v. Pataki, 516 F.3d 50, 56 (2d Cir. 2008) (internal citation omitted). A claim will survive a Rule 12(b)(6) motion only if the plaintiff alleges facts sufficient “to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). “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.” Id. at 679. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. at 678. If a complaint does not state a plausible claim for relief, it must be dismissed. Id. at 679.

DISCUSSION

The Court adopts the recitation of facts^[1] set forth in the R&R and assumes the parties' familiarity therewith. The Court will repeat only those facts relevant to consideration of the FCG Defendants' objections. The gravamen of Plaintiff's allegations against the FCG Defendants is that - pursuant to FCG's role as construction manager of a green energy project (the “Project”) -the FCG Defendants repeatedly paid invoices they knew were fraudulent, at the direction of Defendant Ed Miller, the leader of the enterprise. FAC ¶¶ 5, 115, 117, 139 144.

The R&R advised the parties that they had fourteen days from receipt of the R&R to file any objections and warned that failure to timely file such objections would result in waiver of any right to object. R&R at 15-16. In addition, the R&R expressly called the parties' attention to Rule 72 of the Federal Rules of Civil Procedure and 28 U.S.C. § 636(b)(1). Nevertheless, as of the date of this Order, the Miller Defendants have not filed any objections or made a request for an extension of time to object. Accordingly, the Miller Defendants have waived the right to object to the R&R or to obtain appellate review. See Frank v. Johnson, 968 F.2d 298, 300 (2d Cir. 1992). Despite the waiver, and unguided by objections, the Court has reviewed the R&R and finds it to be well reasoned and grounded in fact and law with respect to denial of the Miller Defendants' motion. Accordingly, the R&R is ADOPTED in this respect and the Miller Defendants' motion is DENIED.^[2]

The FCG Defendants timely filed objections to the R&R, see ECF No. 142 (“Obj.”), which the Court considers pursuant to the standards for reviewing a magistrate judge's report and recommendation set forth above. The Court notes that many of the FCG Defendants' objections in large part reiterate their arguments already made to Judge Wang; indeed, many sections of the FCG Defendants' objections are copied verbatim from their original brief. See ECF No. 101. Nonetheless, the objections are “sufficiently detailed to allow meaningful review of the R&R without needlessly duplicating the efforts of the magistrate judge” and “in any event, the outcome of the case is not affected by the Court's decision to address Plaintiff's objections.” Pirog v. Colvin, No. 15-CV-438 (KMK), 2016 WL 5476006, at *3 (S.D.N.Y. Sept. 28, 2016) (internal citations omitted). Thus, the Court considers these arguments.

The FCG Defendants abandon their standing argument contesting the validity of 125 CHP's assignment of claims to SSCC as well as their Colorado River abstention argument. Unguided by objections, the Court has reviewed the R&R and finds no clear error with respect to its conclusions that SSSC has standing and that abstention is not warranted here. Nonetheless, the Court briefly addresses Colorado River abstention in Section III. Judge Wang's recommendations with respect to these issues are ADOPTED.

The Court now considers the portions of the R&R to which there are objections. The Court finds that Plaintiff has adequately pled the challenged prongs of a civil RICO claim, except with respect to Defendant Scott. Specifically, the FAC establishes an open-ended pattern of racketeering activity and the existence of an association-in-fact enterprise, except with respect to Defendant Scott. Thus, the substantive RICO claim largely survives the motion to dismiss and, following form, so does the RICO conspiracy claim. Next, the Court briefly addresses the rule against claims-splitting and the Colorado River abstention doctrine, finding that neither bars this action. Finally, the Court finds that all the state law claims survive the FCG Defendants' motion because they are not duplicative of the breach of contract action in state court.

I. Plaintiff States RICO Claims Against Defendants FCG and Pogorzelski

To establish a civil RICO claim pursuant to 18 U.S.C. § 1962(c), “a plaintiff must plead the following elements: ‘(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.'” Needham & Co, LLC v. Access Staffing, LLC., No 15-CV-2487 (NRB), 2016 WL 4399288, at *12 (S.D.N.Y. Aug. 12, 2016) (quoting DeFalco v. Bernas, 244 F.3d 286, 306 (2d Cir. 2001)). “RICO defines racketeering activity to mean ‘any act which is indictable' under specified provisions of Title 18,” including mail and wire fraud. Yien-Koo King v. Wang, No. 14-CV-7694 (LJL), 2020 WL 6875403, at *20 (S.D.N.Y. Nov. 23, 2020); see also 18 U.S.C. § 1961(1). Because civil RICO actions carry “the carrot of treble recovery and the...