MEMORANDUM AND ORDER
Plaintiffs Rocco Marini (“Marini”), Josephine Marini (“Mrs. Marini” or “Josephine”), and T & R Knitting Mill, Inc. (“T & R” or “T & R Knitting”) (collectively, “plaintiffs”) brought this action against defendants Harold Adamo, Jr. (“Adamo”), Lisa Adamo (“Mrs. Adamo” or “Lisa”), The Bolton Group, Inc. (“Bolton” or “The Bolton Group”), and H. Edward Rare Coins & Collectibles, Inc. (“H. Edward”) (collectively, “defendants”), alleging, inter alia, that Adamo violated the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq. (“RICO”), and asserting claims for securities fraud pursuant to Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Defendants have moved for partial summary judgment on plaintiffs’ securities fraud and RICO claims, and on plaintiffs’ state-law fraud, breach of contract, and New York General Business Law § 349 claims. For the reasons set forth herein, defendants’ motion is denied with respect to the securities fraud, RICO, and state-law fraud and breach of contract claims. Defendants’ motion is granted, however, with respect to plaintiffs’ General Business Law claim.
I. Background
A. Facts
The following facts are taken from the parties’ depositions, declarations, exhibits and respective Local 56.1 statements of facts.
Plaintiffs’ claims in this case stem from their purchase of rare coins from defendants at what plaintiffs claim were fraudulently inflated prices. Specifically, plain
By way of background, Marini and his wife, Josephine, became close friends with Adamo and his wife, Lisa, after the couples met each other in 1992. (Defs.’ 56.1 ¶ 4.) The Marinis and Adamos are godparents to certain of the others’ children, and they frequently socialized and went on family vacations together. (Id. ¶¶ 5-6.) Prior to engaging in the coin dealings that are the subject of the current action, Marini and Adamo apparently did not conduct any business together. Instead, Marini earned his living as a garment manufacturer through his company, T & R Knitting (Marini 12/31/09 Depo. at 199:8-203:25), and Adamo worked as a coin dealer, first as a salesperson for a company known as United Numismatics (Adamo 6/23/09 Depo. at 89:24-92:13) and later as a coin dealer through two companies (H. Edward and The Bolton Group) that he co-owns with his wife. (Id. at 24:15-26:5, 30:2-31:15; Defs. 56.1 ¶¶ 65-66.)
In August 2002, Marini and Adamo had an in-person meeting during which Ada-mo made numerous representations to Marini that rare coins were an excellent investment opportunity. (Defs.’ 56.1 ¶ 7.) Specifically, in order to induce Marini to purchase coins from Adamo, Adamo represented to Marini that “the kind of coins that he was going to get us into were the top 1 percent of 1 percent, very rare, and those weren’t the kind of coins that he has ever seen go down [in value].” (Marini 12/31/09 Depo. at 17:22-18:2; see also Defs.’ 56.1 ¶ 7.) Adamo also told Marini that Marini could expect twenty to forty percent returns and that, if demanded by Marini, Adamo could repurchase coins from Marini at their present value within twenty-four to forty-eight hours of such demand. (Defs.’ 56.1 ¶ 7.) In addition, Adamo insisted that Marini buy and sell coins only through Adamo. (Marini 12/31/09 Depo. at 5:18-6:6.) However, Adamo’s coins were not subject to such a restrictive agreement, and Adamo was free to buy and sell his own coins without notifying Marini. (Defs.’ 56.1 ¶ 9.) Further, although Adamo also told Marini that “it wasn’t wise to publicize” his coin dealings with Adamo, Adamo did not direct Marini not to tell anyone else about the dealings. (Marini Depo. at 52:7-13.) Marini testified that his close relationship with Adamo, combined with Adamo’s reassurances that Marini could “cash out in 24 to 48 hours,” that the coins were rare and “couldn’t go down in value,” and that Marini was “getting in at what [Adamo] called the dirt bottom,” made it “compelling for [Marini] to start investing with [Adamo].” (T & R 12/23/09 Depo. at 264:2-265:19.)
Consequently, Marini made his first coin purchase from Adamo in September 2002. (Defs.’ 56.1 ¶ 18.) Over the course of approximately the next five years, until in or about May 2007,
As to the nature of Marini and Adamo’s business relationship, it is undisputed that Marini did not know anything about rare coins and that, until Marini became suspicious of Adamo in June 2008, Marini “believe[d] everything” Adamo told him about the coins. (Defs.’ 56.1 ¶ 11; Pis.’ Response to Defs.’ 56.1 ¶ 11.) Josephine, Marini’s wife, was not involved in the decision-making process with respect to buying or trading coins, and she testified that once she and Marini “decided to buy coins,” she “left it up to [Marini] to follow the advice of [Adamo] for which coins to buy.” (J. Marini 12/28/09 Depo. at 49:21-50:16; see also Defs.’ 56.1 ¶ 15.) Further, Marini did not contact Adamo about purchasing coins, but instead waited for Adamo to contact him regarding the coins that Adamo had obtained for Marini. (Defs.’ 56.1 ¶ 12.) Lisa Adamo, however, neither made representations about rare coins to plaintiffs nor caused plaintiffs to purchase any coins. (Id. ¶ 72.) However, Lisa was present when certain cash payments were made by Marini to Adamo, and Marini testified that she “was just as engaging as [Marini] and Mr. Adamo.” (Marini 6/25/10 Depo. at 73:6-24.)
Regarding the scheme to defraud, plaintiffs claim that Adamo “bilk[ed] Marini out of nearly 15 million dollars” by fraudulently misrepresenting “the value of the coins [Adamo] sold Marini and the propriety of coin investments,” and by “continuing] to refuse to honor commitments to buy back Marini’s coin purchases.” (Second Amended Complaint (“SAC”) Intro.) By way of example, plaintiffs allege that each time Marini made a coin purchase, Adamo reiterated the same purportedly false assurances he had given to Marini during their initial conversation in August 2002, namely, that Adamo was offering Marini extremely rare and valuable coins that were “a great value” and were “important ... to add to our portfolio.” (Defs.’ 56.1 ¶ 13; Marini 12/31/09 Depo. at 8:19-24.) Moreover, with each transaction, Adamo not only purportedly told Marini that the proposed coins were “great for our portfolios” but also “led [Marini] to believe that he was purchasing one [coin] for him and one for [Marini].” (Marini 12/31/09 Depo. at 8:3-18.) According to Marini, Adamo “constantly reminded [Marini] of the security of the investment,” told Marini that he could “liquidate within 24 to 48 hours,” and stated that he “would never put [Marini] into coins that [Adamo] wouldn’t put himself into.” (Marini 12/31/09 Depo. at 195:25-196:8.) On other occasions, Adamo “stressed [that the coins] were priced at dirt bottom, at the highest rarity,” and that Adamo was “putting a collection together that would yield us a very good return at the end of our investment period.” (Marini 12/31/09 Depo. at 184:18-24.) Max-ini also testified that Adamo told him during at least one conversation that Mari
Furthermore, throughout the course of their dealings, Adamo periodically would send Marini statements that reflected the purchase prices and current values of the coins in Marini’s portfolio. (Marini 12/31/09 Depo. at 40:16-21; 67:9-11.) Most of these statements showed “no loss” on a single coin, although there were some coins that apparently showed a loss in value. (Id. at 40:22-41:11.) Marini testified, however, that he did not know whether those losses were “due to a loss or due to a typo or mistake.” (Id. at 41:9-11.) Certain of these coin statements were given to Marini in-person (id. at 165:8-11), while others were sent via e-mail. (Marini Decl. Ex. A at PL003855-57, PL003868-70, PL003881-83, PL003904-08.)
In February 2006, Marini had a meeting with Adamo where the two discussed the topic of published price guides for coins. (Marini 12/31/09 Depo. at 54:15-22.) Prior to that meeting, Marini had purchased a copy of the “Red Book,” which contains “coin descriptions, populations,” and prices, and he was “having trouble” matching up the coins on his yearly statements with the coins that were listed in the book, although he “might have found one coin” for which his purchase price was “close to the price” listed in the Red Book. (Id. at 54:23-55:14, 57:14:18.) When Marini asked Adamo about the Red Book, however, Adamo “dismissed it immediately,” and explained that “a lot of the information that was in that book wasn’t from current information” and was not specific to Ada-mo’s or Marini’s portfolio because “you wouldn’t necessarily see that kind of quality rarity [sic] listed publicly in that book.” (Id. at 59:6-21.) Marini accepted Adamo’s explanation and “continued our conversation.” (Id. at 59:19-21.)
In May 2007, Marini stopped purchasing coins from Adamo because Marini did not have additional, available funds at that time. (Marini 6/25/07 Depo. at 70:10-17; Marini 12/31/09 Depo. at 112:18-113:25.) Accordingly, Marini informed Adamo that he “needed to cash out of roughly a million dollars worth of coins from the coin portfolio.” (Marini 12/31/09 Depo. at 113:20-25.) Although it is not entirely clear from the record, it appears that Adamo paid Marini one million dollars in exchange for three coins in early June 2007. (Id. at 113:20-115:4; Marini Decl. Ex. A, PL003718.) Marini reported that Adamo had valued these coins at double what Marini had paid for them. (Marini 12/31/09 Depo. at 116:15-19.) Shortly thereafter, Marini informed Adamo that he needed to cash out of more coins, and Adamo responded that he had a buyer for two coins and would be able to pay Marini “in 60-90 days.” (Marini 12/31/09 Depo. at 115:6-9; Marini Decl. Ex. A, PL003718.) Adamo’s response surprised Marini, because Marini felt that Adamo was contradicting his earlier promises that Marini could liquidate his coins in twenty-four to forty-eight hours. (Marini 12/31/09 Depo. at 115:6-16.) Ultimately, Adamo bought coins back from Marini for a total of $2.54 million. (Marini Decl. ¶ 9; H. Edward 12/22/09 Depo. at 232:15-20.) For other coins that Marini wished to sell, Adamo apparently proposed trades instead. (Marini 12/31/09 Depo. at 157:16-18; see, e.g., Marini Decl. Ex. A, PL003807 (“I HAVE YOUR 120K CHECK AND THE TRADE COIN READY WHEN YOU IS [sic].”).)
[Adamo] was cashing me out of, I believe, an 1879 Stella and I had, I believe, two copies [of the Gray Book] with me.... After we finished the dealing of the Stella, Mr. Adamo, I believe, was jotting down some other coins for a future deal and then I said, I have to ask you, I got this publication and I said I’m still having a hard time, I just don’t see — first, I was having a hard time trying to even identify if it was the exact coins because some coins on my slabs would have an extra number and I just didn’t understand the process, if it made an significant difference....
(Id. at 61:13-62:3.) After Adamo asked Marini whether they were “going there again,” Marini explained that he had “just converted my nest egg into this coin investment” and that he was not able to see any kind of correlation between his coins and the information in the Gray Book. (Id. at 62:3-15.) In response, Adamo reiterated his previous assurances, noting that the coins he and Marini had were “the top 1 percent” and that “customers that [Ada-mo] ha[d] known for over 20 years haven’t been able to accomplish what [Adamo and Marini had] accomplished in the past six years.” (Id. at 62:19-24.)
Thereafter, in or around May 2008, Marini gave Adamo one of his “Stella” coins to be sent out for “upgrading,” meaning that Adamo would try to obtain a higher grade or a star for the coin from a coin grading service. (Adamo 6/23/09 Depo. at 287:12-288:15; see also Marini Decl. Ex A, PL003796, PL003798.) In the subsequent months, Marini sent several follow-up emails to Adamo asking when the Stella would be returned. (Marini Deck Ex. A., PL003834, PL003840, PL003852.) Adamo initially responded to Marini’s emails that the coin would be shipped back within a week, but by September 5, 2008, Adamo reported that the Stella was “there being reholder [sic].” (Marini Deck Ex. A, PL003837, PL003841, PL003842, PL003855.) The following week, on September 12, 2008, Adamo emailed Marini that the Stella would be “back in 7/8 days.” (PL003879.) Plaintiffs claim, however, that Adamo did not, in fact, send the coin out for upgrading and instead sold it without Marini’s permission. (Pis.’ Opp. at 17.) In support of this claim, plaintiffs point to a receipt of purchase that purportedly indicates Adamo sold a Stella coin of the same type, year and grade as Marini’s, and with the same unique serial number, in May 2008. (Id. (citing SAC Ex. Y.).) Nevertheless, in contrast to plaintiffs’ claims, Adamo has apparently returned a coin to Marini that Adamo claims is Marini’s Stella coin. (Id.; see also SAC Ex. YY.)
In any event, in May 2008, around the time that Marini gave the Stella coin to Adamo for upgrading, Marini began to suspect that he was being defrauded by Marini. (Defs.’ 56.1 ¶ 21.) In particular, Marini testified that:
Prior to these deals [in May 2008], I was very clear if it was going to be a trade or a straight cash out deal, everything was going smoothly, any trade deals thatI agreed to, I was honored that he was taking the time to maintain the equity and the vitality of the coin portfolio, but, now, it seemed like he was doing whatever he wanted to do.
(Marini 12/31/09 Depo. at 156:16-23.) Consequently, in late May, Marini took some of his coins to another dealer for evaluation. (Id. at 156:4-7; 166:4-8.) In addition, in June 2008, Marini began to surreptitiously tape record his conversations with Adamo. (Defs.’ 56.1 ¶ 21.) Finally, in July 2008, Marini retained his attorney in this action. (Id.)
Plaintiffs also allege that defendants defrauded other victims in a similar manner. Specifically, plaintiffs point to three other purported identified victims: Frank Brancato, another close family friend of the Marinis and the Adamos; Travis Bain, a former customer who had purchased between twenty-five and fifty coins from H. Edward; and David Albanese, whom Ada-mo refused to pay for a coin until Adamo was threatened with police action. In particular, plaintiffs claim that Brancato was targeted in a similar fashion to Marini, in that Brancato purchased coins from Ada-mo after Adamo gave repeated assurances about the profitability of coin investments. (Pis.’ Opp. at 18-20; Brancato 12/29/09 Depo. at 44:18-20, 47:2-48:21.) Unlike Marini, however, Brancato ultimately was able to sell his coins back to Adamo for a profit. (Pis.’ Opp. at 20 (citing Harris Deck Ex. Q at FRANK000833, 836).) As to Travis Bain, plaintiffs assert that Bain was injured when Adamo sold him coins that plaintiffs allege were fraudulently overgraded, a fact that Bain learned only when he sold his coins through a major auction house at prices lower than Bain thought he would realize.
II. Standard of Review
The standards for summary judgment are well settled. Pursuant to Federal Rule of Civil Procedure 56(a), a court may only grant a motion for summary judgment “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The moving party bears the burden of showing that he or she is entitled to summary judgment. See Huminski v. Corsones,
Once the moving party has met its burden, the opposing party “ ‘must do more than simply show that there is some metaphysical doubt as to the material facts.... The nonmoving party must come forward with specific facts showing that there is a genuine issue for trial.’ ” Caldarola v. Calabrese,
III. Discussion
Defendants have moved for partial summary judgment on plaintiffs’ securities fraud and RICO claims, and on plaintiffs’ state-law fraud, breach of contract, and New York General Business Law § 349 claims. For the reasons set forth herein, defendants’ motion is denied with respect to the securities fraud, RICO, and state-law fraud and breach of contract claims. Defendants’ motion is granted, however, with respect to plaintiffs’ General Business Law claim.
1. Legal Standard
Section 10(b) of the Securities Exchange Act of 1934 (“the Exchange Act”) makes it unlawful “[t]o use or employ, in connection with the purchase or sale of any security ... any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [Securities Exchange] Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.” 15 U.S.C. § 78j(b). In order to state a claim for securities fraud under this Section, the transaction at issue must involve a “security,” as defined in Section 2(1) of the Securities Act of 1933, 15 U.S.C. § 77b(a)(l). Although Section 77b(l) sets forth numerous different instruments that may be considered securities, the parties agree that the only category that applies here is that of “investment contract.”
In SEC v. Howey,
Courts have applied several different tests to determine whether a common enterprise exists, namely: the horizontal commonality test, the broad vertical commonality test, and the narrow or strict vertical commonality test. Revak,
To support a finding of strict vertical commonality, a plaintiff must establish that “ ‘the fortunes of plaintiff and defendants are linked so that they rise and fall together.’ ” Jordan (Bermuda) Inv. Co., Ltd. v. Hunter Green Invs. Ltd.,
2. Application
Defendants have moved for summary judgment on plaintiffs’ securities fraud claim on the ground that plaintiffs have failed to establish that Adamo’s sale of coins to Marini constituted an “investment contract” for purposes of the federal securities laws. Specifically, defendants contend that plaintiffs cannot satisfy the strict vertical commonality element of the Howey test. In opposition, plaintiffs argue that they can establish the requisite level of commonality in one of two ways: first, plaintiffs contend that their purchase of the same coins as defendants would make their fortunes rise and fall together from owning identical property, and, second, plaintiffs assert that because Adamo earned a percentage commission on plaintiffs’ eventual sale of coins, Adamo’s fortunes necessarily would rise and fall with the value of plaintiffs’ coin portfolio. (Pis.’ Opp. at 25.) For the reasons set forth herein, the Court finds that there are disputed issues of material fact that preclude the Court from granting summary judgment on this issue, and, accordingly, defendants’ motion for summary judgment on the securities fraud claim is denied.
As an initial matter, the Court disagrees with plaintiffs that Adamo and Marini’s ownership of the same types of coins necessarily links their fortunes together for purposes of the strict vertical commonality analysis. First, although Adamo and Marini may have owned similar sets of coins, and their portfolios might therefore have been valued similarly, it is clear from the record that Adamo and Marini maintained separate portfolios. Indeed, Marini acknowledged at his deposition that he understood that Adamo was purchasing two of each proposed coin: one for Marini’s portfolio and one for Adamo’s. (Marini 12/31/09 Depo. at 8:12-18 (“[W]hen Mr. Adamo called me and told me that he had coins that he procured for us, he said these are great for our portfolios, so every time he used it in the context of us and our and all that he led me to believe that he was purchasing one for him and one for me.” (emphasis added)).) Moreover, in a recorded conversation, Adamo explained to Marini that, while Adamo viewed their portfolios similarly, their portfolios were not identical in that Adamo owned certain coins that Marini did not: “I may have two of something where you have one. I may have four of something and you have three. You know, a few odds and ends that I have because I liked that I wouldn’t recommend to you for investment....” (Marini Deck Ex. A, PL001123.)
Most important, Adamo was under no obligation to sell his coins at the same time that Marini sold his (Defs. 56.1 ¶ 9); in other words, Adamo was free either to sell his coins before Marini, if an opportunity arose, or to hold onto his coins longer to capitalize on any long-term appreciations in value. Accordingly, while the valuation of their portfolios may have paralleled one another given their similar contents, and any deal that Adamo found could have affected the prices of the coins that Adamo
Indeed, the cases cited by plaintiffs to support their argument are all distinguishable from this case. For example, although the plaintiffs in Howey had purchased separate parcels of land in a citrus grove — just as Marini and Adamo had purchased separate coins here^ — -the transactions were transformed into “investment contracts” not because of the ownership of separate parcels, but instead because plaintiffs had been “offer[ed] an opportunity to contribute money and to share in the profits of a large citrus fruit enterprise managed and partly owned by respondents.”
Furthermore, the Second Circuit’s opinion in Glen-Arden Commodities v. Costantino,
As to plaintiffs second theory of commonality, the Court finds that disputed issues of material fact exist as to whether Adamo earned commissions on the sale of Marini’s coins and, accordingly, the Court
In this case, plaintiffs assert that Adamo “retain[ed] a percentage commission on each eventual sale” of Marini’s coins. (Pis.’ Opp. at 29.) Accordingly, because Adamo asked that Marini sell his coins only through Adamo (Marini 12/31/09 Depo. at 5:21-7:3), if Adamo were to receive a commission on the sale of the coins, his fortunes would be inextricably tied to those of Marini’s. However, the record is not clear as to whether Adamo did, in fact, receive a commission based on the sale of coins. As described by Marini, when Marini asked Adamo how Adamo would be making money and what the structure of the deals was, Adamo responded that “[h]e would be making between 5 and 10 percent, depending on what coin.” (T & R 12/23/09 Depo. at 290:15-22.) It is not clear from this testimony, however, whether this percentage commission would be earned at the time of purchase or at the time of sale. Moreover, Marini indicated elsewhere in his deposition that Adamo’s commission was earned at the time of purchase and that the benefit Adamo received at the time of sale was the availability of Marini’s coins to market to other potential customers:
Q: Did you pay Mr. Adamo a premium for the right to resell the items, the coins, at any time?
A: No, it was discussed that he would charge me, depending on the coin or the particular dealings, anywhere between 5 to 10 percent on the purchase and he did say that when it came time to cash out, he would benefit from that, as well.
Q: How he would [sic] benefit from that?
A: Well, the one thing that he constantly reiterated, that the biggest problem in his industry is finding coins to sell, there was no shortage of buyers, so having the access to a portfolio of this caliber would be very beneficial to him.
(Marini 12/31/09 Depo. at 30:12-31:3.) Although this testimony establishes that Adamo definitely earned a commission at the time of purchase, it does not rule out the possibility that Adamo could also have earned a commission at the time of sale. Because a finding of strict vertical com-
B. RICO
Defendants also move for summary judgment on plaintiffs’ RICO claim on the grounds that plaintiffs cannot establish either the continuity necessary to establish a RICO pattern of racketeering activity, or that their injuries were caused by defendants’ alleged RICO predicate acts. Defendants also argue that plaintiffs are unable to demonstrate that defendants Lisa Adamo or The Bolton Group are part of any RICO enterprise. For the reasons set forth below, the Court denies defendants’ motion.
1. Continuity
a. Legal Standard
To establish a RICO violation, a plaintiff “must plead at least two predicate 'acts, show that the predicate acts are related, and that they amount to, or pose a threat of, continuing criminal activity.” Schlaifer Nance & Co. v. Estate of Warhol,
“Continuity” is both a closed- and open-ended concept, referring either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition .... A party alleging a RICO violation may demonstrate continuity over a closed period by proving a series of related predicates extending over a substantial period of time.... Often a RICO action will be brought before continuity can be established in this way. In such cases, liability depends on whether the threat of continuity is demonstrated. ... [T]he threat of continuity is sufficiently established where the predicates can be attributed to a defendant operating as part of a long-term association that exists for criminal purposes.”).
H.J. Inc.,
“To satisfy open-ended continuity, the plaintiff ... must show that there was a threat of continuing criminal activity beyond the period during which the predicate acts were performed.” Cofacredit, S.A. v. Windsor Plumbing Supply Co.,
b. Application
Here, the Court finds that plaintiffs have put forth sufficient factual allegations regarding the existence of closed-ended continuity to survive a motion for summary judgment. Specifically, plaintiffs allege that defendants defrauded them over the course of approximately six years, during which time plaintiffs purchased 144 coins from defendants for a total alleged loss of approximately $14.5 million. Courts have routinely found that continuity exists where the alleged scheme spans such a substantial period of time, even
Indeed, the Second Circuit has stressed that “[w]hether closed-ended or open-ended, continuity is ‘centrally a temporal concept,’” and “[a]lthough GICC identified several ‘non-dispositive factors’ that courts must consider in assessing whether closed-ended continuity has been established,
Moreover, as to the other non-dispositive factors that are relevant to the continuity analysis, the Court concludes that, after construing the evidence and drawing all reasonable inferences in plaintiffs’ favor, these factors, on balance, preclude the Court from granting summary judgment for defendants. Specifically, plaintiffs here have alleged over 100 predicate acts of mail and wire fraud
2. Causation
a. Legal Standard
RICO provides a private cause of action for “[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter.” 18 U.S.C. § 1964(c). “From this language, courts have extracted the conditions a plaintiff must meet to satisfy RICO’s standing requirements: (1) a violation of section 1962; (2) injury to business or property; and (3) causation of the injury by the violation.” First Nationwide Bank v. Gelt Funding Corp.,
b. Application
Plaintiffs allege that Adamo carried out his scheme through numerous purported acts of mail and wire fraud that allegedly occurred between 2002 and 2008. (See generally Predicates Catalog.) In particular, plaintiffs have alleged that Adamo engaged in fifty-five acts of mail fraud and 135 acts of wire fraud. (Id.) Defendants, however, contend that plaintiffs cannot prove that their injuries were caused by these predicate acts.
As an initial matter, the Court disagrees with plaintiffs that they need not show that the predicate acts themselves caused their injuries. (See Pis.’ Opp. at 66-72.) As noted supra, the Supreme Court plainly stated in Hemi Group that “the compensable injury flowing from a RICO violation necessarily is the harm caused by the predicate acts.”
First, as to plaintiffs’ mail fraud allegations, all but five of the purported acts of mail fraud involved either Adamo’s receipt
As to the alleged acts of wire fraud, plaintiffs acknowledge that four faxes allegedly sent from Adamo to Marini were all sent and received in New York State. (Defs. 56.1 ¶ 26.) Accordingly, because intrastate communications fall outside the scope of RICO, Cofacredit,
Plaintiffs also rely upon communications between Adamo and Marini that did not either result in or represent the culmination of specific coin transactions and, instead, involved proposed deals that may not have come to fruition, statements by Adamo to induce deals, fraudulently misrepresented coin values, or other fraudulent assurances by Adamo regarding the viability of the coin transactions. As with plaintiffs’ other wire fraud allegations, a reasonable jury could conclude that these communications induced plaintiffs to continue making payments to defendants and to otherwise continuing transacting with defendants, not only by purchasing coins but also by giving Adamo possession of the Stella coin in May 2008 for regrading. Accordingly, accepting plaintiffs’ evidence as true and drawing all reasonable inferences in plaintiffs’ favor, the Court cannot conclude, as a matter of law, that plaintiffs are unable to establish that the alleged acts of wire fraud proximately caused their injury. Therefore, defendants’ motion for summary judgment on this ground is denied.
a. Legal Standard
A RICO enterprise under Section 1961(4) includes “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” 18 U.S.C. § 1961(4). An association-in-fact enterprise is “a group of persons associated together for a common purpose of engaging in a course of conduct” which is “proved by evidence of ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit.” United States v. Turkette,
The Second Circuit has made clear that “the person and the enterprise referred to must be distinct,” and, therefore, “a corporate entity may not be both the RICO person and the RICO enterprise under section 1962(c).” Riverwoods Chappaqua Corp. v. Marine Midland Bank, N.A.,
b. Application
Here, plaintiffs have asserted that Ada-mo is the RICO person and that Adamo together with The Bolton Group is the enterprise. Defendants argue that, despite Bolton’s incorporation under the laws of the New York, Bolton is not sufficiently separate and distinct from Adamo for it to be part of a RICO enterprise with Ada-mo.
While accepting the “distinctness” principle, we nonetheless disagree with the appellate court’s application of that principle to the present circumstances — circumstances in which a corporate employee, acting within the scope of his authority, allegedly conducts the corporation’s affairs in a RICO-forbidden way. The corporate owner/employee, a natural person, is distinct from the corporation itself, a legally different entity with different rights and responsibilities due to its different legal status. And we can find nothing in the statute that requires more “separateness” than that.
Linguistically speaking, an employee who conducts the affairs of a corporation through illegal acts comes within the terms of a statute that forbids any “person” unlawfully to conduct an “enterprise,” particularly when the statute explicitly defines “person” to include “any individual ... capable of holding a legal or beneficial interest in property,” and defines “enterprise” to include a “corporation.” 18 U.S.C. §§ 1961(3), (4). And, linguistically speaking, the employee and the corporation are different “persons,” even where the employee is the corporation’s sole owner. After all, incorporation’s basic purpose is to create a distinct legal entity, with legal rights, obligations, powers, and privileges different from those of the natural individuals who created it, who own it, or whom it employs.
Id. (citations omitted). Similarly, in this case, plaintiffs have alleged that a corporate employee (Adamo) is the “person” and the corporation, with Adamo, is the “enterprise.” The fact that Bolton was co-owned and controlled by Adamo and that Bolton did not have a website, email address, or phone number are not controlling here, where it is undisputed that Bolton has been incorporated as legally separate identity from Adamo. Indeed, defendants have not presented a single case to support their argument that Bolton is not sufficiently distinct from Adamo, despite Bolton’s incorporation under the laws of the State of New York.
C. State-Law Claims
Defendants have also moved for summary judgment on plaintiffs’ claims for common law fraud, breach of contract, and violations of New York General Business Law § 349. For the reasons set forth infra, the Court grants defendants’ motion with respect to the General Business Law claim, but denies the motion with respect to the fraud and breach of contract claims.
1. Common Law Fraud
Defendants have moved for summary judgment on plaintiffs’ fraud claim to the extent that this claim seeks punitive damages. Specifically, defendants argue that plaintiffs’ case is, in actuality, premised on a contractual agreement between Adamo and Marini “under which Adamo would choose coins for Marini to buy at their current value plus a 5% to 10% commission,” (Defs.’ Reply at 40), and that, as such, plaintiffs’ punitive damages claim must be dismissed, because punitive damages are not available in breach of contract cases without a requisite showing of fraud aimed at the public generally, a showing that defendants contend plaintiffs are unable to make here. (See Defs.’ Mem. of Law at 53-54; Defs.’ Reply at 40-43.)
As an initial matter, the Court notes that defendants have correctly pointed to a line of cases under New York law which have held that punitive damages are not available for fraud claims arising from a contractual relationship between the parties. See Rocanova v. Equitable Life Assur. Soc’y,
2. General Business Law § 349
New York General Business Law § 349 prohibits “[deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service.” N.Y. G.B.L. § 349(a) (McKinney’s 2004); accord Securitron Magnalock Corp. v. Schnabolk,
In this case, plaintiffs have proffered no evidence that defendants’ scheme was aimed at the public generally. For example, plaintiffs have not put forth any evidence that defendants maintained a website, circulated marketing materials, or made other efforts to make misrepresentations to the public generally, or even to a broad group of people. In the absence of any allegations or factual proof that defendants’ engaged in consumer-oriented activity within the meaning of the statute, plaintiffs cannot survive defendants’ motion for summary judgment on this claim. Accordingly, plaintiffs’ General Business Law § 349 claim is dismissed.
3. Breach of Contract
Defendants argue that plaintiffs’ breach of contract claim must be dismissed because plaintiffs’ have not produced sufficient evidence of their damages. Specifically, defendants’ contend that plaintiffs’ expert’s sworn statement that, because of market fluctuations, “many of the coins ... [in plaintiffs’] collection may have a current market value that is below their peaks of just a few years ago,” (Parrella Deck Ex. A at 2) is insufficient to create a triable issue of fact. The Court, however, disagrees and finds that defendants’ argument would require the Court to make credibility determinations regarding plaintiffs’ expert’s testimony that are not appropriate on a motion for summary judgment.
IV. Conclusion
For the reasons set forth herein, defendants’ motion for summary judgment is denied with respect to plaintiffs’ securities fraud, RICO, and state-law fraud and breach of contract claims. Defendants’ motion is granted, however, with respect to plaintiffs’ General Business Law claim.
SO ORDERED.
Notes
. Where only one party’s 56.1 statement is cited, the cited fact is not contested by the other party or the other party has offered no evidence to controvert that fact.
. Although plaintiffs allege that the scheme to defraud extended into 2008, Marini testified that he stopped purchasing coins from defendants in or around May 2007. (Marini 6/25/07 Depo. at 70:10-17; Marini 12/31/09 Depo. at 112:18-113:25.)
. In their response to defendants' 56.1 statement, plaintiffs referred the Court to Exhibit A to plaintiffs' Amended RICO Statement, which sets forth eighty-three payments allegedly made to defendants. In any event, this distinction is not dispositive for purposes of the Court's present analysis.
. Adamo had originally proffered one coin to Marini that he stated was the Stella, but he later provided a different coin, noting, through his attorney, that the first coin returned to Marini was not the original. (See SAC Ex. YY.)
. The Court notes, however, that Bain testified that he did not think that Adamo defrauded him. (Bain 8/30/09 Depo. at 19:6-12.)
. Plaintiffs have also alleged that Adamo defrauded an unidentified individual whom Ada-mo referred to as a "sucker” for purchasing a coin at a value that Adamo thought was too high. (Pis.' Opp. at 21.) However, no additional details regarding this alleged victim are contained in the record. Further, although plaintiffs proffered another additional victim, Dominick Grosso, no declarations or other admissible evidence regarding Grosso’s interactions with Adamo was provided. Rather, plaintiffs have relied upon inadmissible hearsay. (See Pis.’ Opp. at 22-23, notes 207-13.) Therefore, the Court has not relied upon plaintiffs' allegations regarding Grosso.
. Defendants have argued that T & R Knitting is not a proper plaintiff and must be dismissed from this action. Specifically, defendants argue that Marini caused T & R to make all payments to defendants and that T & R does not own any of the coins at issue in this case. (Defs.’ Mem. of Law at 14-15.) Plaintiffs acknowledge that Marini testified that "he purchased some coins with payments from T & R, at times when T & R owed Marini money on loans Marini made to T & R.” (Pis.' Opp. at 87.) However, plaintiffs also note that defendants have contested Marini's explanation by questioning the existence of these loans and, consequently, questioning whether the coins paid for by T & R do, in fact, belong to Marini. (Pis.' Opp. at 87.) Thus, given the disputed issues of fact regarding payments made by T & R allegedly on Marini’s behalf, defendants' motion for summary judgment to dismiss T & R as a plaintiff is denied.
. Defendants argue that plaintiffs' securities fraud claim is limited to transactions that occurred after September 30, 2003 because of the applicable statute of limitations. (See Defs.’ Mem. of Law at 49.) Plaintiffs concede this point. (See Pis.’ Opp. at 24.) Therefore, this argument need not be addressed by the Court.
. The Court notes that, in Revak, the Second Circuit declined to reach the issue of whether the existence of strict vertical commonality alone “gives rise to a common enterprise.”
. For example, on one occasion, Adamo emailed Marini about a potential sale that would “push up the prices of our same coins tremendously.” (Marini 12/31/09 Depo. at 144:15 — 154:145:15.) Similarly, on another occasion, Adamo led Marini to believe that they were both selling their identical coins to a purchaser for the same sale price. (Id. at 9:15-24.) However, even in this latter deal, it is clear that Marini and Adamo's portfolios and fortunes were not inextricably linked. Specifically, although Adamo was selling his coin because the offered sale price was “great” and he was "advising” Marini to do the same (id. at 9:23-24), there is nothing in the record to indicate that Marini had to sell his coin because Adamo so advised. To the contrary, Marini could have chosen to hold onto his coin, which would have resulted in Adamo earning a profit on his coin when Marini did not (or did not until a later, unspecified date). Under these circumstances, the "profits and losses of the investment” clearly were not “interdependent.” Kaplan,
. Marini’s claim that Adamo earned commissions based on the sale of Marini's coins is addressed infra. As set forth below, there are disputed issues of fact as to whether Adamo actually earned such commissions.
. The Court also notes that, in Howey, the Supreme Court “narrowed the Joiner ... test [for determining the existence of an investment contract].” Gary Plastic Packaging Corp., 756 F.2d at 239. In Joiner, the Court stated that the test was "what character the instrument is given in commerce by the terms of the offer, the plan of distribution, and the economic inducements held out to the prospect.”
. As noted supra, the Second Circuit in Revak rejected the broad vertical commonality test, which requires that "the fortunes of the investors ... be linked only to the efforts of the promoter.”
. See, e.g., Copeland v. Hill,
. Defendants have also argued that if plaintiffs’ securities fraud claim is allowed to proceed, plaintiffs’ RICO claims are barred under the PSLRA, which provides that if conduct is actionable under the federal securities laws, the same transaction cannot also be the basis for liability under RICO. See MLSMK Inv. Co. v. JP Morgan Chase & Co.,
. Plaintiffs have conceded that certain acts of wire fraud involved purely intrastate communications. As set forth infra, because intrastate communications fall outside of the scope of RICO, the Court has not considered these communications in its analysis.
. The Court also notes that plaintiffs here are not seeking to recover damages for any fraud allegedly perpetrated on Brancato and, instead, are putting forth allegations regarding Brancato solely to support their claim that Adamo engaged in a pattern of racketeering activity. Accordingly, the cases cited by defendants for the proposition that a victim may not maintain a RICO cause of action where the victim has already been "made whole” by defendants with regard to losses (see Defs.’ Mem. of Law at 23, n. 6) are inapposite under these circumstances.
. The Court recognizes that only a limited number of defendants allegedly participated in the claimed scheme to defraud. However, given that the Court must construe the facts and draw all reasonable inferences in plaintiffs' favor for purposes of defendants' motion, the Court concludes that this factor does not outweigh the other considerations discussed supra and does not allow the Court to conclude, as a matter of law, that no reasonable jury could find that defendants' engaged in a pattern of racketeering activity, particularly in light of the substantial period of time over which defendants are alleged to have engaged in such racketeering activity.
. Defendants also argue that plaintiffs cannot establish "but for” causation because, according to defendants, "Marini began purchasing coins in September 2002, before any predicate RICO acts are alleged to have occurred.” (Defs.' Mem. of Law at 35 (emphasis in original).) The Court disagrees. As discussed supra in connection with the alleged acts of wire fraud, plaintiffs have put forth evidence that they made numerous payments to defendants beginning as early as September 2002. {See, e.g., Predicates Catalog: Wirings Qualifying as Wire Fraud, Predicate Acts 30-45.) Again, as discussed herein, plaintiffs' injuries could not have occurred without these payments. To the extent defendants argue that these payments do not constitute wire fraud because there is “no evidence that these transactions between parties with New York bank accounts involved interstate wires,” (Defs.' Mem. of Law at 39), the Court concludes that plaintiffs have put forth sufficient evidence to create a disputed issue of fact on this point. Specifically, plaintiffs
. Defendants have also moved for summary judgment on the RICO claim with regard to defendant Lisa Adamo, arguing that Lisa Ada-mo was not part of any RICO enterprise. Plaintiffs acknowledge, however, that Lisa Adamo was not part of any alleged RICO enterprise and, in fact, Lisa Adamo in not named as a defendant in connection with the RICO count in the Second Amended Complaint. Accordingly, the Court need not reach
. The Court also notes that, as was the case in Cedric Kushner, the allegations here are distinguishable from the factual circumstances of other Second Circuit decisions in which a corporate defendant "person” was found not to be distinct from the corporate "enterprise.” As explained in Cedric Kushner:
[T]hat precedent involved quite different circumstances which are not presented here. This case concerns a claim that a corporate employee is the "person” and the corporation is the "enterprise.” It is natural to speak of a corporate employee as a "person employed by” the corporation. § 1962(c). The earlier Second Circuit precedent concerned a claim that a corporation was the "person” and the corporation, together with all its employees andagents, were the "enterprise.” See River-woods Chappaqua Corp. v. Marine Midland Bank, N.A., 30 F.3d 339 , 344 (1994) (affirming dismissal of complaint). It is less natural to speak of a corporation as "employed by” or "associated with” this latter oddly constructed entity. And the Second Circuit’s other precedent also involved significantly different allegations compared with the instant case. See Anatian v. Coutts Bank (Switzerland) Ltd.,193 F.3d 85 , 89 (1999) (affirming dismissal where plaintiff alleged that same bank was both "person” and "enterprise”), cert. denied,528 U.S. 1188 ,120 S.Ct. 1241 ,146 L.Ed.2d 100 (2000); Discon, Inc. v. NYNEX Corp.,93 F.3d 1055 , 1064 (1996) (involving complaint alleging that corporate subsidiaries were "persons” and subsidiaries, taken together as parent, were "enterprise”), vacated on other grounds,525 U.S. 128 ,119 S.Ct. 493 ,142 L.Ed.2d 510 (1998); Bennett [v. United States Trust Co. of New York,770 F.2d 308 , 315, and n. 2 (2d Cir.1985)], (same as Anatian).