Zanghi v. Ritella

FRANCESCO ZANGHI and ZANGHI LLC, Plaintiffs, v. PIERGRAZIANO RITELLA, GIUSEPPE CAVALLARO, ALESSANDRO VACCA, GIANLUCA ALOCCI, STEFANO CALLEGARI, FUTURA HOSPITALITY LLC, STUDIO LEGALE CAVALLARO, and GIOIA E VITA S.R.L., Defendants.

No. 19 Civ. 5830 (NRB)

United States District Court, S.D. New York

September 24, 2021

MEMORANDUM AND ORDER

NAOMI REICE BUCHWALD, UNITED STATES DISTRICT JUDGE

This case arises out of investments made by plaintiffs Francesco Zanghi and his company, Zanghi LLC, in pizzerias located in the United States and Italy. Broadly speaking, the Amended Complaint (“Complaint” or “FAC” (ECF No. 87)) alleges that Zanghi, an Italian citizen and domiciliary, was induced into making those investments as a result of misrepresentations and other misconduct by fellow Italian domiciliary defendants Giuseppe Cavallaro, Alessandro Vacca, Gianluca Alocci, Stefano Callegari, Studio Legal Cavallaro, and Gioia e Vita S.r.L. as well as U.S. defendants Piergaziano Ritella and Futura Hospitality LLC.

The ten-count Complaint asserts claims for the unlawful sale of unregistered securities and fraud in connection with the purchase of securities in violation of Sections 12(a)(1) and 12(a)(2) of the Securities Act of 1933, Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. 15 U.S.C. §§ 77l(a)(1), (2), 78j(b), 78t(a); 17 C.F.R. § 240.10b-5. The Complaint also charges defendants with civil violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) for engaging and conspiring to engage in a pattern of racketeering activity. 18 U.S.C. §§ 1962(c), (d). Finally, the Complaint asserts common-law claims for fraud, breach of fiduciary duty, conversion, money had and received, and unjust enrichment.

Defendants move to dismiss the Complaint on several grounds. (“Mot.” (ECF No. 139).) First, they seek dismissal of the case in its entirety on the grounds of forum non conveniens. Second, defendants argue that the Complaint fails to adequately plead a strong inference of scienter to support the Section 10(b) and Rule 10b-5 securities fraud claims. Third, defendants offer various arguments for dismissal of plaintiffs' civil RICO claims including that the Private Securities Litigation Reform Act (“PSLRA”) bars civil RICO claims predicated on conduct that would qualify as securities fraud. See 18 U.S.C. § 1964(c). Finally, defendants submit that the Court should decline to exercise supplemental jurisdiction over plaintiffs' common law claims on the basis that plaintiffs have failed to plead viable claims arising under federal law. For the reasons below, defendants' motion is granted in part and denied in part.

BACKGROUND^[1]

In 2014, Zanghi sustained serious injuries in a boating incident. Following the incident, Zanghi hired defendant Cavallaro, an Italian attorney and Zanghi's close friend and Cavallaro's law firm, defendant SL Cavallaro, and obtained a €420, 000 settlement for his injuries.

Roughly four years later, in May 2018, Cavallaro approached Zanghi about an opportunity to invest in a Roman-style pizzeria brand called La Rossa that was opening restaurants in the United States and potentially other locations internationally. Cavallaro explained to Zanghi that the La Rossa brand had been founded by defendant Ritella, a restaurateur living in New York, and that the La Rossa pizzerias were going to use a proprietary pizza-making method developed by defendant Callegari, an Italian chef, based on a 200-year-old sourdough starter. Cavallaro helped Ritella plan and develop the La Rossa projects in the United States, which included drafting the purchase agreement for Callegari's proprietary pizza-making method and handling La Rossa's trademark application. During the May 2018 meeting, Cavallaro introduced Zanghi to Ritella as a potential investor in La Rossa.

Following the meeting, Cavallaro sent Zanghi the La Rossa business plan that had been drafted by Cavallaro, SL Cavallaro, and Ritella. After reviewing the business plan, Zanghi purchased membership interests in three La Rossa limited liability companies from defendant Futura, Ritella's holding company for ownership interests in various La Rossa entities. Specifically, between June and November 2018, plaintiffs acquired the La Rossa membership interests through the following transactions:

(1) a $70, 000 transaction in June 2018 for 15% of the La Rossa brand;

(2) a $100, 000 transaction in June 2018 for 33% of La Rossa's Miami location (“La Rossa Miami”);

(3) an $85, 000 transaction in August 2018 for 10% of La Rossa's New York location (“La Rossa New York”); and

(4) a $60, 000 transaction in November 2018 for an additional 20% of La Rossa New York and an investment towards acquiring 22% of a Miami-based restaurant called Giotto that would also employ La Rossa's proprietary pizza-making method.^[2]

The limited liability company interests that Zanghi acquired were only partial ownership interests with no managerial authority. Ritella and Futura remained the managing members with the exclusive right to manage, control, and conduct the business of the La Rossa brand, La Rossa Miami, and La Rossa New York. Zanghi completed these transactions through Zanghi LLC, a limited liability company owned entirely by Zanghi and originally organized by Ritella. Cavallaro, SL Cavallaro, and defendant Alocci, Cavallaro's associate, drafted the Zanghi LLC-Futura purchase agreements and reviewed them with Zanghi. Upon completion of these transactions, Cavallaro demanded and received $15, 000 in commissions from Futura for his role in securing Zanghi's investments.

While La Rossa's New York location opened in December 2018, it folded within a year when New York City marshals seized the property for the restaurant's failure to pay rent. The La Rossa Miami location never opened, and defendants never acquired Giotto.

The Complaint alleges that each of the La Rossa transactions was tainted by fraud. Among other misrepresentations and acts of misconduct pled in the Complaint related to these transactions, plaintiffs allege that:

(1) the La Rossa business plan contained misstatements about the amount of the total investment in the La Rossa entities and how those funds were being employed;

(2) La Rossa's proprietary pizza-making method was based on Callegari's sourdough starter that was illegally smuggled into the United States, ^[3] a fact that Zanghi claims was never disclosed in the La Rossa business plan or otherwise;

(3) information about La Rossa New York's tax and rent liabilities as well as title issues with the La Rossa membership interests sold by Futura were concealed from Zanghi; and

(4) Ritella and defendant Vacca, another Italian restaurateur, forged a purchase agreement that was presented to Zanghi and purported to show equipment purchases by La Rossa Miami that never occurred.

Separate from the La Rossa transactions, Zanghi also claims to have been defrauded into purchasing a 24% ownership interest in Callegari's restaurant, Sforno, located in Rome. Zanghi purchased the ownership stake in Sforno from the Italian restaurateur Vacca's company, defendant Gioia e Vita, for €72, 000. The Complaint alleges that Vacca, Ritella Cavallaro, and Alocci made material misrepresentations to Zanghi to induce his investment in Sforno.

The Complaint also alleges that defendants operated as a RICO enterprise to carry out these fraudulent acts as part of an “overarching scheme of preparing and disseminating forged and false documents to defraud Zanghi” and “profit[ing] from the fraudulent recruitment of investors in Roman-styled pizzerias.” (FAC ¶¶ 269, 296.) In support of their civil RICO claim, plaintiffs allege that defendants committed multiple predicate acts of wire fraud in violation of 18 U.S.C. § 1343 in connection with making material misrepresentations to Zanghi for the purpose of inducing his investments in the La Rossa entities. (See id. ¶¶ 261-92.) As additional predicate acts in furtherance of the RICO enterprise, the Complaint also alleges that defendants engaged in bank fraud, money laundering, the receipt and transfer of stolen property, immigration document fraud grand larceny, the use of means of interstate and foreign travel to carry out racketeering acts, and witness tampering in connection with this lawsuit in violation of 18 U.S.C. §§ 1344, 1512, 1546, 1952, 1956, 1957, 2314, and 2315 as well as New York Penal Law § 155.40. (See id.)

DISCUSSION

I. Forum Non Conveniens

We begin with defendants' argument that we should exercise our discretion under the doctrine of forum non conveniens to dismiss this case without prejudice so that it may instead be litigated in Italy.^[4]

While the Complaint does not distinguish between claims related to the La Rossa transactions and claims related to the Sforno transaction when pleading the causes of action, these transactions arose from distinct sets of contracts concerning different groups of restaurants that plaintiffs allegedly entered into based on separate instances of misrepresentations and other misconduct. Given these distinctions, we analyze the La Rossa claims and the Sforno claims separately for purposes of the forum non conveniens discussion below.

A. Legal Standards

Forum non conveniens is a discretionary doctrine that permits a district court to dismiss claims when “a court abroad is the more appropriate and convenient forum for adjudicating the controversy.” Sinochem Int'l Co. v Malaysia Int'l Shipping Corp., 549 U.S. 422, 425 (2007); see Carey v. Bayerische Hypo-Und Vereinsbank AG, 370 F.3d 234, 237 (2d Cir. 2004) (noting that forum non conveniens is a “discretionary device permitting a court in rare instances to dismiss a claim even if the court is a...