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FILED: KINGS COUNTY CLERK 06/19/2017 04:45 PM
FILED: KINGS COUNTY CLERK 06/19/2017 04:45 PM

NYSCEF DOC. NO. 124

INDEX NO. 509504/2016 RECEIVED NYSCEF: 06/16/2017

PRES ENT:

At an lAS Term, Com 11 of the Supreme Court of the State of New York, held in and for the County of Kings, at the Courthouse, at Civic Center, Brooklyn, New York, on the

12 th of June 2017.

HON. SYLVIA G. ASH, Justice.

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MORDECHAI ITZKOWITZ, et aI.,

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Plaintiffs,

ALAN J. GINSBURG, et aI.,

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Defendants.

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Decision / Order

Index No. 509504/-q:~ ~ ~

The following papers numbered 1 to 4 read herein:

Notice of Motion/Order to Show Cause/ Petition/Cross Motion and Affidavits (Affirmations) Annexed Opposing Affidavits (Affirmations) Reply Affidavits (Affirmations)

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Papers Numbered

1 - 5

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Defendants, Alan J. Ginsburg ("Ginsburg"), Mega Funding, LLC ("Mega"), Green Apple Cab Company, LLC ("Green Apple") and GLS Transit, Inc. ("GLS"), (collectively the "Ginsburg Defendants"), move to dismiss the complaint, or in the alternative, to sever Plaintiffs' claims. Additionally, the Ginsburg Defendants move to vacate and quash a non-party subpoena served upon Signature Bank ("Signature") and obtain a protective order.

Defendants, Yitzchok Mattis Swerdloff ("Swerdloff') and Dale & Crne, LLC ("Dale" and

collectively the "Swerdloff Defendants") also move to dismiss the complaint. Plaintiffs oppose

to amend the complaint. Plaintiffs, 17B LLC, 50P LLC, 307P LLC, GORN LLC,

MKGT LLC, MM MMGT LC, MUNIT LLC, SC BSD LLC, SN S&N LLC, SS N&S LLC, YM1875 LLC (collectively the "LLC Plaintiffs"), move to discontinue their claims against

Defendants without prejudice.

and cross-move

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NYSCEF DOC. NO. 124

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For the reasons set forth below, the Ginsburg and Swerd10ff Defendants' motions to dismiss the complaint or in the alternative to sever Plaintiffs' claims are GRANTED in part and DENIED in part. The Ginsburg Defendants' motion to vacate and quash the subpoena and to obtain a protective order is DENIED in its entirety. Plaintiffs' cross-motion to amend the complaint is GRANTED. The LLC Plaintiffs' motion to discontinue their claims against Defendants without

prejudice is GRANTED.

Background

Alleged fraud, perpetuated in connection with business transactions, precipitated this action. According to Plaintiffs, starting in 2014, Ginsburg with the assistance of Swerd10ff and Judah Langer ("Langer"), concocted a scheme to extract money from unwitting investors, of which Plaintiffs numbered. The alleged scheme centered around inducing investors to purchase Boro Taxi Permits ("Permits"), issued under the New York City Taxi & Limousine Commission's Street Hail Livery Program, from initial permit-holders. In purchasing the Permits, the investors were allegedly led to believe that they would earn profits and obtain tax benefits by selling the Permits and renting out taxicabs.

In exchange for a series of advance payments, Ginsburg, Swerd10ff and Langer allegedly promised Plaintiffs, among other things, the following: (1) that they would transfer Permit ownership from the original permit-holders to Plaintiffs, after one year; (2) that drivers, willing to pay a weekly rental fee for the taxicabs, would be at Plaintiffs' disposal; (3) that Plaintiffs would receive a $15,000 government rebate for making existing taxicabs wheelchair-accessible and a $10,000 tax credit for new vehicles; and (4) that management and other services, including parking space for the vehicles, would be provided to Plaintiffs. Relying upon Ginsburg and Swerd10ff s alleged representations, Plaintiffs invested in the alleged scheme.

However, Plaintiffs claim that the primary objective of the alleged scheme, to enrich Defendants at the expense of investors, soon revealed itself. Plaintiffs allege that Ginsburg, the scheme's ringleader, enlisted Swerd10ff and Langer, assigned them roles and supervised their work. Plaintiffs further claim that Swerd10ff was tasked with, among other duties, recruiting unsuspecting investors into the scheme. Langer allegedly served as the titular head of the scheme, managing its day-to-day operations. Ginsburg, Swerd10ff and Langer are further alleged to have used Mega, Green Apple, Dale and GLS as shell corporations to contract with Plaintiffs and to funnel the scheme's alleged ill-gotten gains to their personal bank accounts.

In furtherance of the scheme, vehicles were allegedly purchased outside of the State of New York and retrofitted in the State of Maryland. Ginsburg, along with his partners, are said to have recruited investors in the states of New York, Maryland and New Jersey via emai1s and telephone calls. In their complaint, Plaintiffs assert, among other claims, racketeering (RICO), fraud, breach of contract and unjust enrichment.

The Ginsburg Defendants now move to dismiss Plaintiffs' complaint. The Ginsburg Defendants argue that Plaintiffs' RICO claims are without merit. According to the Ginsburg Defendants, Plaintiffs' reliance on a single interstate phone call made to a potential investor, is insufficient to constitute racketeering activity under the RICO statute. Further, the Ginsburg

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Defendants argue that Plaintiffs fail to demonstrate that Defendants' alleged actions were related for purposes of the RICO statute.

Additionally, the Ginsburg Defendants argue that Plaintiffs' fraud claims are barred by the contracts that Plaintiffs entered into with Mega, Green Apple, Dale and GLS. The Ginsburg Defendants point to the following contractual language in support: "[i]t is understood and acknowledged [by Plaintiffs] that any investment made in the Company was and will not be done in reliance on any statement or omissions by [Mega, Green Apple, GLS, and Dale]".

As to Plaintiffs' breach of contract and unjust enrichment claims, the Ginsburg Defendants argue that those claims are duplicative and insufficiently pled. And that Individual Plaintiffs, Chaim Neger and Green Medallion One, LLC (collectively, "Neger"), executed a general release on June 17,2015, resolving all of his claims against Defendants. In the alternative to their motion to dismiss, the Ginsburg Defendants argue that Plaintiffs' claims should be severed because Plaintiffs' claims are unrelated to one another.

In addition to moving to dismiss Plaintiffs' complaint, the Ginsburg Defendants also move to vacate and quash a non-party subpoena served upon Signature on July 8, 2016. The subpoena seeks to obtain all documents relating to the Ginsburg Defendants' bank accounts, including bank statements, cancelled checks and deposit tickets, starting from January 1, 2014. The Ginsburg Defendants argue that the subpoena is overly broad, improperly noticed, and seeks to obtain information that falls outside the scope of discovery. The Ginsburg Defendants, designating the subpoena a tool of harassment, seek to obtain a protective order.

The Swerdloff Defendants similarly move to dismiss Plaintiffs' complaint and adopts the Ginsburg Defendants' arguments regarding Plaintiffs' RICO claims. As to Plaintiffs' fraud claims, the Swerdloff Defendants argue that Plaintiffs fail to identify any actionable statements by the Swerdloff Defendants to support those claims. Similarly, the Swerdloff Defendants maintain that the complaint fails to allege the existence of a contractual relationship between the parties or that the Swerdloff Defendants have been unjustly enriched.

Plaintiffs oppose both the Ginsburg and the Swerdloff Defendants' motions and cross- move to amend the complaint. Plaintiffs dispute the Ginsburg Defendants' allegation that the complaint relies on a single interstate phone call to satisfy the racketeering activity requirement of the RICO statute. Plaintiffs point to the complaint's allegation that Defendants made a number of phone calls and sent a number of email messages to out-of-state investors, in furtherance of the scheme. Further, Plaintiffs maintain that the complaint sufficiently asserts fraud claims. And that the contractual language cited by the Ginsburg Defendants, which purportedly bars fraud claims, is too broad in nature and does not apply to Ginsburg and Swerdloff, in their individual capacities.

Further, Plaintiffs argue that they have successfully asserted breach of contract because the complaint alleges that Defendants failed to, among other things, provide Plaintiffs the promised Permits. Plaintiffs insist that Defendants have been unjustly enriched by the alleged scheme because Defendants collected Plaintiffs' money without providing the promised benefits. With regards to Neger's alleged release of his claims against Defendants, Plaintiffs argue that the release's period of effectiveness extends only to June 17, 2015. According to Plaintiffs,

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Defendants' misrepresentations and inducement ofNeger to invest in the alleged scheme occurred after June 17, 2015. As to the Ginsburg Defendants' request that Plaintiffs' claims be severed, Plaintiffs argue against severance due to what Plaintiffs claim to be the claims' legal and factual

similarities.

Plaintiffs also oppose the Ginsburg Defendants' motion to vacate and squash the subpoena and to obtain a protective order. Plaintiffs argue that the subpoena appropriately seek to obtain relevant financial information from Signature. To support the relevancy of the information requested of Signature, Plaintiffs point to the complaints' allegations that Defendants commingled the scheme's ill-gotten funds with their own personal monies. Plaintiffs argue that the subpoena is not overly broad because the subpoena seeks to obtain specific documents for a limited period of time, starting January 2014. Plaintiffs dispute the Ginsburg Defendants' contention that the subpoena was improperly noticed. According to Plaintiffs, the Ginsburg Defendants received notice of the subpoena on July 18,2016,20 days prior to the subpoena's return date on August 10,

2016.

Argument

A motion to dismiss pursuant to CPLR S 3211 (a)(1) will be granted only if the

"documentary evidence resolves all factual issues as a matter of law, and conclusively disposes of the plaintiffs claim" (see Leon v Martinez, 84 NY2d 83, 88 [1994]). However, on a motion to

dismiss pursuant to CPLR

CPLR 3026). The facts, as alleged in the complaint must be accepted as true; the plaintiff accorded the benefit of every possible favorable inference; and the court must only determine whether the

facts as alleged fit within any cognizable legal theory (see Morone v Morone, 50 NY2d 481, 484 [1980]; Rovello v Orofino Realty Co., 40 NY2d 633 [1976]). The Court will consider the validity of the contested claims based on the aforementioned principals.

First, both the Ginsburg and Swerdloff Defendants argue that Plaintiffs' RICO claims are deficient. To establish a RICO claim under 18 U.S.C. 1962(c), "a plaintiff must show that he was injured by defendants' (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity" Azrielli v. Cohen Law Offices, 21 F3d 512, 520 [2d Cir. 1994]). RICO defines "pattern of racketeering activity" as requiring "at least two acts of racketeering activity" committed in a 10- year period (18 U.S.c. S 1961(5); see also Azrielli, 21 F3d at 520).

S 3211 (a) (7), the pleading is to be afforded a liberal construction (see,

To establish a pattern of racketeering activity, a plaintiff must also make a showing that the predicate acts of racketeering activity by a defendant are "related, and that they amount to or pose a threat of continued criminal activity" (see H J, Inc. v. Northwestern Bell Tel. Co., 492 US 229, 239 [1989]). The continuity necessary to prove a pattern can be either "open-ended continuity," (i.e., past criminal conduct coupled with a threat of future criminal conduct) or "closed-ended continuity" (i.e., criminal conduct "extending over a substantial period of time") see GICC Capital Corp. v Technology Finance Group, Inc., 67 F3d 463, 467 (2d Cir 1995). A matter occurring over a number of years satisfies as a substantial period of time for continuity purposes (id.).

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Here, the complaint sufficiently alleges conduct that falls within the ambit of the RICO statute. Contrary to the Ginsburg and Swerdloff Defendants' contention, the complaint does not simply rely upon one interstate phone call to demonstrate racketeering activity. Rather, the complaint alleges that Defendants recruited investors in three different states, via numerous emails and telephone calls to take part in the alleged scheme. Further, the complaint sufficiently alleges a pattern of racketeering activity because Defendants' alleged misconduct is said to have extended over a substantial period of time. Therefore, the Ginsburg and Swerdloff Defendants' motions to dismiss Plaintiffs' RICO claims are DENIED.

Next, the Ginsburg and Swerdloff Defendants argue that Plaintiffs either fail to properly assert fraud claims or that Plaintiffs' fraud claims are barred by the contracts entered into with Mega, Green Apple, Dale and GLS. "The elements of a cause of action sounding in fraud are a material misrepresentation of an existing fact, made with knowledge of the falsity, an intent to induce reliance thereon, justifiable reliance upon the misrepresentation, and damages" (lntrona v Huntington Learning Ctrs., Inc., 78 AD3d 896, 898 [2d Dept 2010]; see Eurycleia Partners, LP v Seward & Kissel, LLP, 12 NY3d 553, 559 [2009]).

Here, the complaint sufficiently alleges fraud claims because Plaintiffs maintain that Defendants misled and induced them to invest in the alleged scheme. However, the parties' contract bars Plaintiffs from asserting fraud claims based upon statements or omissions made by Mega, Green Apple, Dale and GLS. As such, to the extent that Plaintiffs' fraud claims are based upon statements or omissions made by Mega, Green Apple, Dale and GLS, they are dismissed. The Ginsburg and Swerdloff Defendants' motion to dismiss Plaintiffs' fraud claims is otherwise DENIED.

The Ginsburg and SwerdloffDefendants also move to dismiss Plaintiffs' breach of contract

and unjust enrichment claims. The elements of a cause of action to recover damages for breach of contract are (1) the existence of a contact, (2) the plaintiffs performance under the contract, (3) the defendant's breach of the contract, and (4) resulting damages (see Jp Morgan Chase v JH

69 AD3d 802, 803 [2d Dept 20 10]). However, the existence of a valid and

enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter (Clark-Fitzpatrick, Inc. v. Long Island R. Co., 70 NY2d 382 [1987]). A "quasi contract" only applies in the absence of an express

Elec. of NY, Inc.,

agreement, and is not really a contract at all, but rather a legal obligation imposed in order to prevent a party's unjust enrichment (Farash v Sykes Datatronics, 59 NY2d 500, 504 [1983]).

Here, the complaint sufficiently alleges claims for breach of contract against Mega, Green Apple, GLS and Dale because Plaintiffs claim that they were not provided the benefits called for by the parties' contract. However, the existence ofa valid contract between Plaintiffs, Mega, Green Apple, GLS and Dale necessarily prevents Plaintiffs from asserting unjust enrichment against those entities. Therefore, the Ginsburg and Swerdloff Defendants' motion to dismiss Plaintiffs' unjust enrichment claims as against Mega, Green Apple, Dale and GLS is GRANTED.

However, Plaintiffs are permitted to assert both breach of contract and unjust enrichment claims against Ginsburg and Swerdloff in their individual capacities. As such, the Ginsburg and

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Swerdloff Defendants' motion to dismiss Plaintiffs' breach of contract and unjust enrichment claims as Ginsburg and Swerdloffis DENIED.

The Ginsburg Defendants also move to vacate and quash the subpoena and obtain a protective order. Pursuant to CPLR S 3101(a)(4), a party may obtain discovery from a non-party

in possession of material and necessary evidence, provided that the non-party is informed of the circumstances or reasons disclosure is sought (emphasis added). CPLR S 3101 provides in

pertinent part:

prosecution or defense of an action, regardless of the burden of proof by: [

upon notice stating the circumstances or reason such disclosure is sought or required."

"The phrase material and necessary' is to be interpreted liberally to require disclosure, upon request, of any facts bearing on the controversy which will assist preparation for trial by sharpening the issues and reducing delay and prolixity. The test is one of usefulness and reason" (Allen v. Crowell-Collier Publ. Co., 21 NY2d 403,406 [1968]; see also Yoshida v. Hsueh-Chih Chin, 111 AD3d 704, 705 [2d Dept 2013].

(a) "[t]here shall be full disclosure of all matter material and necessary in the

] (4) any other person,

CPLR S 3101 (a)( 4) also contains a notice requirement with regard

to non-parties, wherein

the subpoenaing

accompanying it, "the circumstances or reasons such disclosure is sought or required" (Matter of Kapon v. Koch, 23 NY3d 32, 34 [2014]). Generally, the standard to be applied on a motion to quash a subpoena "is whether the requested information is 'utterly irrelevant' to any proper inquiry" (Gertz v Richards, 233 AD2d 366, 366 [1996]). The person challenging the subpoena bears the burden of demonstrating the utter irrelevancy of the demands (id.; see Matter of Hogan v Cuomo,

67 AD3d 1144 [2009]).

Here, the information sought by the subpoena is material and relevant because the complaint alleges that Defendants transferred the alleged scheme's ill-gotten gains to their own personal bank accounts. Further, the subpoena is not overly broad because the subpoena seeks to obtain the Ginsburg Defendants' financial information for a specific period of time, starting January 2014. The subpoena was properly noticed because the Ginsburg Defendants were notified of the subpoena on July 18,2016,20 days prior to the subpoena's return date on August 10,2016. As such, the Ginsburg Defendants' motion to vacate and squash the subpoena and to obtain a protective order is DENIED.

In addition, the Ginsburg Defendants move to sever Plaintiffs' claims. "Although it is within a trial court's discretion to grant a severance, this discretion should be exercised sparingly" (Shanley v Callanan Indus., 54 NY2d 52, 57 [1981]). Severance is generally "inappropriate where the claims against the defendants involve common factual and legal issues, and the interests of judicial economy and consistency of verdicts will be served by having a single trial" (New York Cent. Mut. Ins. Co. v McGee, 87 AD3d 622 [2d Dept 2011]). Here, severance of Plaintiffs' claims would be ill-advised because the claims involve common factual and legal issues. As such, the Ginsburg Defendants' motion to sever is DENIED.

Turning now to Plaintiffs' cross-motion to amend, applications for leave to amend pleadings should be freely granted except when the delay in seeking leave to amend would directly

party must first state either on the face of the subpoena, or in a notice

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cause undue prejudice or surprise to the opposing party, or when the proposed amendment is

palpably insufficient or patentlydevoid!of merit (see CPLR 3025 [b]; Lucido v Mancuso,

220,222 [2d Dept 2008]). Here, Plaintiffs' proposed amendments will not cause undue prejudice nor serve as a surprise to Defendants aJ the action is in the beginning stages and Plaintiffs seek to add factual allegations and claims to thbir complaint. Therefore, Plaintiffs' cross-motion to amend

is GRANTED.

With regards to the Ginsburg befendants' motion to dismiss Neger claims based on the

June 17, 2015 release, that motion i~ I DENIED because a dispute exists as to applicability in the instant case.

motion to voluntarily discontinue their claims against
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49 AD3d

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the release's

Lastly, the LLC Plaintiffs'

Defendants without prejudice, is GRANTED.

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This constitutes the Decision aAd Order of the Court.

lil

Sylvia G. Ash, J.S.C

HON. SYlVfA GASH. JSC

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