Estate of Gottdiener v. Sater
35 F. Supp. 3d 386
S.D.N.Y.2014Background
- Plaintiffs Tausky, Suan Investments, and the Gottdiener estates sue Defendants under RICO for alleged participation in a pump-and-dump scheme via the White Rock-Blair Enterprise.
- Palagonia, Blair & Co. allegedly traded Plaintiffs’ accounts without authorization, causing $7.9 million in losses plus fees; restitution judgments and third-party recoveries reduced net losses.
- White Rock Partners, Lauria, and Sater allegedly controlled large blocks of Holly and USBNY shares, paid brokers to inflate prices, and launder proceeds.
- Criminal pleas by Lauria and Sater involved securities fraud predicates and money laundering; Plaintiffs claim some convictions were hidden from the public until later unsealing.
- Plaintiffs rely on the “conviction exception” to § 1964(c) to support civil RICO claims predicated on aiding and abetting securities fraud or conspiracy, but the court finds this exception inapplicable.
- The court sua sponte considers whether amendments could cure pleading defects, but ultimately grants dismissal and closes the case.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| RICO securities fraud bar and conviction exception applicability | Plaintiffs rely on conviction exception to permit RICO claims. | Conviction exception does not apply because convictions are not for Palagonia’s fraud and do not connect to Plaintiffs. | Conviction exception inapplicable; RICO claims barred. |
| Predicate acts: aiding and abetting securities fraud as a RICO predicate | Aiding and abetting securities fraud can serve as predicate acts under RICO. | Aiding and abetting is not a RICO predicate act and Central Bank forecloses civil aiding-and-abetting liability. | Aiding and abetting cannot be a RICO predicate act; substantive RICO claim fails. |
| Rule 9(b) pleading sufficiency | Complaint adequately ties defendants to Palagonia’s scheme. | Complaint lacks specific details (time, place, speaker, content) and misidentifications hinder notice. | Complaint fails Rule 9(b) particularity; dismissal affirmed. |
| RICO conspiracy viability | Conspiracy liability mirrors substantive RICO allegations. | Conspiracy claim suffers the same defects and cannot circumvent Central Bank. | Conspiracy RICO claim dismissed. |
| Statute of limitations and tolling | Equitable tolling conceals Lauria’s conviction; claims timely against some defendants may survive. | Lauria’s sentence predates suit by years; no valid tolling established. | Claims against Lauria time-barred; untimely. |
Key Cases Cited
- MLS MK Inv. Co. v. JPMorgan Chase & Co., 651 F.3d 268 (2d Cir. 2011) (PSLRA barred private aiding-and-abetting liability under §1964(c))
- Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (S. Ct. 1994) (aiding and abetting securities fraud cannot support private RICO action)
- Bowdoin Constr. Corp. v. Rhode Island Hosp. Trust Nat’l Bank, 869 F. Supp. 1004 (D. Mass. 1994) (aiding and abetting securities fraud cannot serve as RICO predicate acts)
- Department of Economic Development v. Arthur Andersen & Co. (U.S.A.), 924 F. Supp. 449 (S.D.N.Y. 1996) (discussion of secondary liability and RICO predicate acts)
- First Capital Asset Mgmt., Inc. v. Satinwood, Inc., 385 F.3d 159 (2d Cir. 2004) (9(b) heightened pleading applies to fraud predicates under RICO)