Rapillo v. Fingerhut, 1:09-cv-10429

Background

Plaintiffs John and Heidi Rapillo received roughly $2.4 million from a 2004 personal-injury settlement and sought investment help from longtime acquaintance David Holzer.
The Rapillos wired $1.9 million in four transfers between Oct 2005 and Mar 2006: $300,000 into an escrow for a Waverly I real-estate LLC (a legitimate investment) and $1.6 million to Holzer’s personal account for purported investments in a dinner-theater project, Waverly II, and stock in V‑Campus.
Holzer later admitted (criminal plea) that he kept and spent the $1.6 million for himself and did not invest those funds on the Rapillos’ behalf.
Plaintiffs sued Holzer, Barry Fingerhut, and several Fingerhut‑Holzer entities asserting claims under the Advisers Act, Section 10(b)/Section 20(a), common-law fraud, conversion, and breach of fiduciary duty.
There was no evidence that Fingerhut or the corporate defendants knew about the three wire transfers to Holzer’s personal account or participated in those alleged fraudulent transfers; the Rapillos had little or no contact with Fingerhut before the transfers and understood Movants did not take retail retail investors.
The district court granted defendants’ summary judgment motion in full, concluding Plaintiffs failed to raise any genuine issue of material fact as to Movants’ liability on any claim.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Applicability of the Advisers Act (Counts I–II)	Rapillos argue defendants acted as investment advisers or held themselves out as advisers and are liable for fraud/breach under the Advisers Act.	Defendants contend no investment‑adviser contract or advisory relationship existed with Plaintiffs and the Advisers Act private remedy is limited to rescission/restitution of advisory fees.	Court: No advisory contract or relationship; even if there were, Advisers Act relief would not cover Plaintiffs’ sought recovery (summary judgment for defendants).
Section 10(b) / Section 20(a) securities fraud (Count III)	Plaintiffs contend defendants made material misrepresentations or controlled Holzer and are liable as primary or controlling persons.	Defendants: Misrepresentations were made by Holzer alone; communications from defendants post‑date transfers and concern only Waverly I; no evidence defendants knew of or participated in Holzer’s fraud.	Court: No evidence any Movant made a material misrepresentation or was a culpable controlling person; summary judgment for defendants.
Common-law fraud, aiding and abetting, respondeat superior, veil piercing (Counts IV–V)	Plaintiffs assert fraud for each investment and alternatively allege aiding/abetting, vicarious liability, and veil piercing to reach defendants.	Defendants: Holzer committed the fraud; Movants lacked actual knowledge and provided no substantial assistance; veil piercing and respondeat superior unsupported by record.	Court: Plaintiffs failed to show material misrepresentation by Movants, actual knowledge, or factors justifying veil piercing or respondeat superior; summary judgment for defendants.
Conversion and breach of fiduciary duty (Counts VI–IX)	Plaintiffs seek recovery for conversion of $1.9M and breach of fiduciary duties by Movants.	Defendants: Waverly I ($300k) was a legitimate escrowed investment; the $1.6M went to Holzer personally and Movants neither received nor knew about those transfers; no fiduciary duty re: secret transfers.	Court: Waverly I not converted; only Holzer converted the $1.6M; no evidence Movants had actual knowledge or breached fiduciary duties — summary judgment for defendants.

Key Cases Cited

Holtz v. Rockefeller & Co., 258 F.3d 62 (2d Cir. 2001) (district courts may disregard Local Rule 56.1 assertions unsupported by the record)
BellSouth Telecomms., Inc. v. W.R. Grace & Co., 77 F.3d 603 (2d Cir. 1996) (opposing party cannot defeat summary judgment by conclusory assertions)
Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (U.S. 1986) (standard for genuine issue of material fact at summary judgment)
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (U.S. 1986) (nonmoving party must do more than show metaphysical doubt)
Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11 (U.S. 1979) (Advisers Act private remedy limited to rescission/restitution; no broader private damages)
Stoneridge Inv. Partners, LLC v. Scientific‑Atlanta, Inc., 552 U.S. 148 (U.S. 2008) (elements required to prove Rule 10b‑5 liability)
Rolf v. Blyth, Eastman Dillon & Co., Inc., 570 F.2d 38 (2d Cir. 1978) (recklessness can satisfy scienter in certain fiduciary contexts but material misrepresentation still required)
Lerner v. Fleet Bank, N.A., 459 F.3d 273 (2d Cir. 2006) (New York law requires actual knowledge for aider‑and‑abettor claims)
Schlaifer Nance & Co. v. Estate of Warhol, 119 F.3d 91 (2d Cir. 1997) (elements of common‑law fraud mirror securities fraud analysis)
Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400 (2d Cir. 2006) (conversion requires unauthorized exercise of ownership over property)