993 F. Supp. 2d 414
S.D.N.Y.2014Background
- Patricia Cohen sues her ex-husband Steven Cohen, his brother Donald Cohen, and Steven's former partner Brett Lurie for fraud, breach of fiduciary duty, and RICO violations in a long-running family dispute.
- Steven formed SAC Trading, with Donald as accountant; Lurie was SAC's counsel and Patricia's former attorney.
- Lurie Investment: Steven invested $8,745,169 with Lurie in Queens apartment conversions; project failed and settlement of $5.5 million was later received.
- During separation in 1990, Steven allegedly concealed the Lurie Investment and misrepresented financials; separation agreement included a merger clause and acknowledged lack of full disclosure.
- Patricia discovered the concealment in 2006 and learned of the Lurie settlement and related misrepresentations; Patricia amended and renewed complaints leading to the third amended complaint.
- Judge Pauley granted in part and denied in part the defendants’ motion to dismiss the third amended complaint.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Fraud reliance on separation agreement disclosures | Patricia alleges misrepresentations about the Lurie Investment induced her to settle for less. | Patricia cannot plead reasonable reliance due to merger/disclaimer provisions in the separation agreement. | Patricia sufficiently pled fraud; reliance may survive despite merger clause. |
| RICO standing of Patricia | Patricia suffered injury to marital property (Lurie Investment and settlement) due to concealment. | Standing requires a concrete property interest; mere expectancy is insufficient. | Patricia has standing because the Lurie Investment was marital property and concealment injured it. |
| Pattern of racketeering activity (RICO 1962(c)) | Multiple predicate acts (concealment, insider trading, securities fraud, mail fraud) form a pattern. | Acts are not sufficiently related to SAC or to form a pattern; no vertical/horizontal relatedness. | RICO pattern not established; conspiracy claim under RICO dismissed. |
| RICO Conspiracy under 1962(d) | Agreed acts among Steven, Donald, SAC constitute a conspiracy to violate RICO. | No substantive RICO violation shown; conspiracy requires a substantive predicate. | Conspiracy claim dismissed because no viable RICO predicate proven. |
| Breach of fiduciary duty and aiding/abetting | Steven breached duties as husband; Donald aided by false statements and financial misrepresentations. | Donald’s fiduciary duty status as accountant not established; aiding/abetting requires knowledge and participation. | Breach of fiduciary duty found against Steven; aiding/abetting found against Donald; Donald’s breach claims dismissed in part. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility standard for pleading; no bare conclusions)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (facial plausibility required for claim)
- Danann Realty Corp. v. Harris, 5 N.Y.2d 317 (N.Y. 1959) (contract disclaimers can negate reliance but not always in fraud in inducement)
- Harsco Corp. v. Segui, 91 F.3d 337 (2d Cir. 1996) (disclaimer in contract can bar fraud claim when no reliance on reserved representations)
- DeMauro v. DeMauro, 115 F.3d 94 (1st Cir. 1997) (injury to marital property supports standing in RICO claims)
- Cohen v. SAC Trading Corp., 711 F.3d 353 (2d Cir. 2013) (Second Circuit on RICO standing and fraud/partition issues)