Stewart v. Loring Estates LLC

CHERYL STEWART, RADHICA PARSARAM, RAFAEL CASTRO, ROGER WAGNER,MALCOLM CARRINGTON, VERNON WELLS, HAZEL CLARK, WAYNE DORSET, ANDMERVYN DYER, Plaintiffs, v. LORING ESTATES LLC, LORING ESTATES HOMEOWNERS ASSOCIATION CORP.,KONDAUR CAPTIAL CORPORATION, NORTH SHORE INVESTORS REALTY GROUP, LLC, PI-NC,LLC, 609 EMERALD STREET LLC, THOMAS KONTAGIANNIS,LORENZO DELUCA, AND ALAN WEINREB, Defendants.¹

18-CV-2283 (MKB) (SMG)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

February 26, 2020

REPORT & RECOMMENDATION

GOLD, STEVEN M., U.S. Magistrate Judge:

INTRODUCTION

On April 18, 2018, plaintiffs Cheryl Stewart, Radhica Parsaram, Rafael Castro, Roger Wagner, Malcolm Carrington, Vernon Wells, Hazel Clark, Wayne Dorset, and Mervyn Dyer, proceeding pro se, commenced this action against nine defendants: Loring Estates LLC ("Loring Estates"), Loring Estates Homeowners Association Corp. ("Loring Estates HOA"), Kondaur Capital Corporation ("Kondaur"), North Shore Investors Realty Group, LLC ("North Shore"), PI-NC, LLC ("PI-NC"), 609 Emerald Street LLC ("609 Emerald Street"), Thomas Kontogiannis, Lorenzo Deluca, and Alan Weinreb, alleging breach of contract and fraud in connection with thesale to them of residential properties located in Brooklyn, New York. Compl., Dkt. 1. One month later, on May 18, 2018, United States District Judge Margo K. Brodie dismissed plaintiffs' Complaint for lack of subject matter jurisdiction; in light of plaintiffs' pro se status, though, Judge Brodie granted plaintiffs leave to file an amended complaint. Mem. & Order dated May 18, 2018, Dkt. 7. With respect to subject matter jurisdiction, Judge Brodie held that (1) the parties were not completely diverse, as it appeared that "all [p]laintiffs and all but one [d]efendant [we]re domiciled in New York," and (2) the case did not arise under a federal question because plaintiffs appeared to allege only state law claims sounding in breach of contract and fraud. Id. at 5.

Thereafter, on December 21, 2018, plaintiffs filed a 577-page Amended Complaint alleging a RICO claim as well as claims for breach of contract and fraud under New York law. Am. Compl., Dkt. 17.² Plaintiffs also named 56 new defendants³ and two new plaintiffs—Fred Harry and George Wagner—in the Amended Complaint. The caption of the AmendedComplaint includes one of the two new plaintiffs⁴ and 49 of the 56 new defendants named in the body of the document; the parties' names, however, are listed in a different order than in the original caption.

From March 2019 through November 2019, plaintiffs moved to amend the caption and/or the Amended Complaint several times and also moved for a preliminary injunction. See Mot. for Leave to Amend Caption filed Mar. 14, 2019, Dkt. 22; Mot. for Leave to Amend Caption with Signature Page filed Mar. 21, 2019, Dkt. 29; Mot. for Prelim. Inj., Dkt. 38; Mot. for Leave to Amend Caption filed Aug. 29, 2019, Dkt. 62⁵; Mot. for Leave to Amend Complaint to Correct Jurisdictional Defects filed Sept. 19, 2019, Dkt. 68; Mot. for Leave to Amend Caption filed Nov. 6, 2019, Dkt. 88. In response to the Amended Complaint and these motions filed by plaintiffs, defendants North Shore, Weinreb, Kondaur, Fidelity Title, Chicago Title, 609 Emerald Street (collectively, "appearing defendants") and interested party Stewart Title Insurance Company ("Stewart Title"),⁶ by various separate filings, moved to dismiss the Amended Complaint for, as relevant here, lack of subject matter jurisdiction, failure to state a claim, and/or expiration of the statute of limitations. See North Shore's & Weinreb's Mot. to Dismiss, Dkt. 24; Kondaur's Mot.to Dismiss, Dkt. 33; Chicago Title's & Fidelity Title's Mot. to Dismiss, Dkt. 57; Stewart Title's Mot. to Dismiss, Dkt. 80; 609 Emerald Street's Letter, Dkt. 83.

In response to plaintiffs' multiple filings, Judge Brodie directed plaintiffs on two occasions to "refrain from filing any additional motions until the Court has ruled on all motions currently before the Court." Order dated Sept. 23, 2019; Order dated Nov. 14, 2019. Judge Brodie then referred the various pending motions to me for Report and Recommendation. Order Referring Mots. dated Nov. 14, 2019.

After the motions were referred to me, I scheduled an in-person status conference for January 2, 2020 and directed all plaintiffs and counsel for defendants to appear. Order dated Dec. 9, 2019. Although defendants served plaintiffs with the scheduling order, none appeared at the conference, which proceeded in their absence. Min. Entry dated Jan. 2, 2020, Dkt. 104. I expressed some preliminary views about the pending motions during the conference and provided defendants an opportunity to submit letters in response to those views. Following the filing of the transcript of the proceedings on January 3, 2020, Tr., Dkt. 103, I entered an Order affording plaintiffs the opportunity to submit a response as well, and directing them to do so by January 15, 2020. Order dated Jan. 3, 2020.

Plaintiffs submitted a letter dated December 30, 2019 that was filed on January 2, 2020. Letter dated Dec. 30, 2019, Dkt. 106. In their letter, plaintiffs sought a stay for 90 days while they "put[] together a legal team." I denied plaintiffs' application to stay the case, with leave to renew if counsel promptly appeared on plaintiffs' behalf and sought a reasonable period of time to become familiar with the details of the case. Order dated Jan. 7, 2020. No attorney has since appeared on plaintiffs' behalf or indicated any intention of doing so.

Stewart Title filed a letter in response to the matters discussed at the conference, assertingthat plaintiffs' contract and RICO claims should be dismissed as time-barred and that the fraud claims should be dismissed on the ground that plaintiffs have not suffered any injury. Letter dated Jan. 7, 2020, Dkt. 107. On January 13, 2020, plaintiffs filed a document titled "Motion in Response to Conference Held on January 2, 2020," opposing dismissal of their Amended Complaint. Mot. in Response to Conference, Dkt. 109.

For the reasons stated below, I respectfully recommend that plaintiffs' various motions be denied, that defendants' motions to dismiss be granted, that plaintiffs' RICO claim be dismissed with prejudice as to all defendants named and sought to be named by plaintiffs, and that plaintiffs' state law claims be dismissed without prejudice. I further respectfully recommend that plaintiffs not be afforded another opportunity to amend their complaint and that the action be dismissed in its entirety.

FACTS

Except where otherwise specifically indicated, the facts set forth below are drawn generally from plaintiffs' original Complaint, Amended Complaint, and the various motions made by plaintiffs now pending before the Court. More precise citations are in several instances not provided in the interest of simplicity because of the length of plaintiffs' submissions and because the facts recounted below are in some instances distilled from the numerous submissions plaintiffs have made.

Between 2006 and 2008, plaintiffs each purchased property in a subdivision known as Loring Estates in Brooklyn, New York. Am. Compl. at 16-17; Compl. ¶ 24; Mem. & Order dated May 18, 2018 at 2.⁷ Plaintiffs' claims arise from the criminal conviction of ThomasKontogiannis, the developer of Loring Estates. In 2011, Kontogiannis was convicted in the Eastern District of New York of conspiracy to commit bank fraud and wire fraud in violation of 18 U.S.C. § 1349. Kontogiannis Guilty Plea in United States v. Kontogiannis, 09-CR-360, Aff. of David J. Wolkenstein in Supp. of Chicago Title's & Fidelity Title's Mot. to Dismiss ("Wolkenstein Aff."), Ex. 5, Dkt. 58-5.

The facts involving Kontogiannis's fraudulent scheme are detailed in his 2009 indictment. Indictment ("Ind."), Wolkenstein Aff., Ex. 1, Dkt. 58-1. Insofar as relevant here, the indictment alleges that Kontogiannis acquired the land where Loring Estates would later be built in 2002 and 2003. Id. ¶ 3. He then directed family, friends, and employees to submit false mortgage loan applications in connection with purported purchases of various Loring Estates properties. Id. ¶ 19. These applications were designed to create the appearance that the loan applicants were bona fide purchasers and were qualified to obtain the loans they were seeking. Id. ¶ 21. Coastal Capital or CIP Mortgage Corporation, mortgage lenders controlled by Kontogiannis, approved these loan applications. Id. ¶¶ 20, 21. At sham closings, the parties involved in the scheme prepared and executed phony closing documents, including mortgage applications, title reports, and appraisals. Id. ¶ 17. Many of the deeds and mortgages, though, were never recorded. Id. ¶ 22. The mortgage loans made by Coastal Capital and CIP Mortgage Corporation were then sold to investors in the secondary mortgage market, including Washington Mutual Bank, Inc. ("Washington Mutual") and DLJ Mortgage Capital, Inc. ("DLJ Mortgage Capital"), a subsidiary of Credit Suisse U.S.A., Inc. Id. ¶¶ 14-15, 27. Kontogiannis used the funds from the sales in the secondary mortgage market to finance construction in Loring Estates, among other projects, and to enrich himself and his family. Id. ¶ 18.

Kontogiannis and his co-defendants defrauded Washington Mutual and DLJ MortgageCapital of nearly $100 million. In a letter submitted in connection with Kontogiannis's sentencing, the government summarized his fraudulent scheme as follows:

Kontogiannis was a real estate developer who engineered a massive mortgage fraud scheme whereby he staged sales of homes in order to reap the mortgage proceeds. Some of the homes were not yet built. Most of the homes were sold repeatedly, which was accomplished by failing to record the mortgages and deeds. Toward the end of the scheme, Kontogiannis sold the homes to legitimate third parties (meaning, individuals unrelated to Kontogiannis who simply wanted to purchase a home). The mortgages and deeds for

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