Behrens et al v. JP Morgan Chase Bank N. A. et al

MEMORANDUM OF LAW in Opposition re: 203 MOTION to Dismiss the Complaint on behalf of Defendant Paul Thomas. corrected. Document

S.D.N.Y.September 28, 2018

UNITED STATES DISTRICT COURT SOUTHERN DlSTRICT OF NEW YORK BRUCE BEHRENS, et al. Plaintiffs, vs. JPMORGAN CHASE BANK, N.A., et aL, Defendants, Index No. 1:16-cv-05508-VSB Hon. Vernon S. Broderick PLAINTIFFS' MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANT, PAUL THOMAS' MOTION TO DISMISS THE SECOND AMENDED COMPLAINT September 28,2018 Susan J. Levy Attorney for Plaintiffs 40 East 1Oth Street Suite 2k New York, New York 10003 Tel. (212) 962·1782 Fax (212) 962-3711 Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 1 of 34 TABLE OF CONTENTS Page TABLE OF AUTHORITIES .................................................................................................. .iii PRELIMINARY STATEMENT ............................................................................................... I ARGUMENT ............................................................................................................................ l I. THE STATUTE OF LIMITATIONS DEFENSE SHOULD FAIL ..................................... .l A. Defendant has Failed to Establish His Statute of Limitations Defense Based on New York's Three Year Statute of Limitations Which Includes Equitable Tolling ............................................................................................................................ 2 B. Plaintiffs Have Plausibly Alleged Tolling under the Continuous Representation Doctrine and Based on Fraudulent Concealment To Toll New York's 3 Year Statute of Limitations Under C.P.L.R.§214(6) ....................... 5 1. Because Paul Thomas continued to litigate their case, the claim against Paul Thomas was timely interposed in 2017 ................................. 6 2. Equitable estoppel based on fraudulent concealment applies, based on misrepresentations to cover up Mr. Thomas's own m1 practice .............................................................................................................. 9 a. Paul Thomas' fraudulent concealment of his own malpractice is based on the letters of February 10, 2012 and July 31, 2012 ......................... 11 b. Because the legal malpractice is distinct from the fraudulent ·concealment, equitable tolling is appropriate ................................................. 14 II. THIS COURT IS NOT OBLIGED TO APPLY C.P.L.R.§202 TO THIS PENDANT STATE LAW CLAIM, THUS THE LEGAL MALPRACTICE CLAIM ISTIMEY UNDER IOWALAW .......................................... 15 III. THE SAC PROPERLY MET APPLICABLE PLEADING STANDARDS TO SATISFY 18 U.S.C.§ 1961 ET.SEQ., WITH RESPECT TO PAUL THOMAS ....................................................................... 18 A. The SAC Amply Establishes an Association-In-Fact Enterprise In Which Paul Thomas, Esq. Participated ................................................................... 19 -1- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 2 of 34 Page 1. The Association-In-Fact Enterprise had a common purpose ................................. 20 2. Relatedness has been plausibly alleged to describe this Association- in-fact Enterprise .................................................................................................... 21 3. The Enterprise alleged is separate and apart from the pattern of racketeering activity .......................................................................................... 22 C. Because Paul Thomas, Esq. In Furtherance of The Enterprise Committed More than Two Acts of Mail Fraud and Wire Fraud within a 10 Year Period, The Predicate Acts Have Been Satisfied ......................................................... 22 D. Because the SAC Properly Alleged RICO Proximate Causation, the RICO Claim Should Stand ........................................................................................... 25 IV ALTERNATIVELY, PLAINTIFFS REQUEST AN OPPORTUNITY TO REPLEAD TO CURE ANY DEFICIENCIES IF NECESSARY ...................................... 25 CONCLUSION .......................................................................................................................... 25 -11- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 3 of 34 TABLE OF AUTHORITIES Cases: Page Ackerman v. Price Waterhouse, 84N.Y.2d 535 (1994) .................................. ~ .................................................... 3 Alizio v. Ruskin Moscou Faltischek, P.C. 126 A.D.3d 733 (2d Dep't 2015) ..................................................................... 3 Angemeir v. Cohen, 14 F. Supp.3d 134 (2014) ................................................................................ 23 Behrens v. JP Morgan, Et AI. 16·cy-5508 (S.D.N.Y,. 2016) ....................................................................... 18 Beroza v. Sallah Law Firm, P. C. 126 A.D.3d 742 (2d Dep't 2015) .................................................................... 8 Breslin Reality Development Corp. v. Schackner 397 F. Supp.2d 390 (E.D.N.Y. 2005) ............................................................ 20 Butala v. Agashiwala, 916 F. Supp. 314 (S.D.N.Y. 1996) ................................................................ 11 Chambers v. Time Warner Inc., 282 F.3d 147 (2d Cir.2002) .............................................................................. 1 Cofacrecredit v. Windsor Plumbing Supply Co., 187 F.3d 229 (2d Cir. 1999) ........................................................ ~ ................ 19 In re Crude Oil 913 F. Supp. 2d 41 (S.D.N.Y.2012) .................................................................. 1 Deep v. Boies, 121 A.D.3d 1316 ( 3rd Dep't 2014), l'vden'd, 25 N.Y.3d 903 (2015) ....................................................................... 9 Destaso v. Condon Resnick, LLP., 90 A.D.3d 809 (2d Dep't 2011) .................................................................... 6,.8 Farange v. Ehrenberg, 124 A.D.3d 159 (2d Dep't 2014), l'v den 'd, 25 N.Y.3d 906 (2015) ................. 6 Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 4 of 34 Page General Stencils v. Chiappa, 18 N.Y.2d 125 (1966) .................................................................................... 10 Glamm v. Allen, 57 N.Y.2d 87 (1982) ...................................................................................... 3,7 Global Financial Corp. v. Triac Corp., 93 N.Y.2d 525 (1999) .................................................................................... 16 Gordon & Co. V. Ross 63 F. Supp.2d 405 (S.D.N.Y.1999) ...................................................................... 2,16 Greene v. Greene, 56 N.Y.2d 86 (1982) ........................................................................................ 7 Guaranty Trust Co. v. York, 326 u.s. 99 (1945) ...................................................................................... 16 HJ.Inc., v. Northeastern Bell Telephone Co. Et al, 109 S.Ct. 2893 (1989) ......................................... ; ..................................... 19 Jordan Inv. Co. Ltd (Bermuda) Inv. Co. Ltd. v. Hunter Green Investment Ltd., 154 F. Supp. 2d 682 (S.D.N.Y. 2001) ........................................................ 23 Koch v. Christies Intern. PLLC., 699 F.3d 141 (2d Cir. 2012) ....................................................................... 17 Kuritsky v. Sirlin & Sir/in, 231 A.D.2d 607 (2d Dep't. 1996) .......... : ..................................................... .4 Louzoun v. Kroll Moss & Kroll, 113 A.D.3d 600 (2d Dep't 2014) ................................................ :···· ........... .3,7 Macaluso v. Del Col., 95 A.D.3d 959 ( 2d Dep't 2002) ................................................................ 5, 7 McCoy v. Feinman, 99 N.Y.2d 295 (2002) ............................................................................ 5,6,7 Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 5 of 34 Page Meridien Intern Bank, L. T. D. v. Government of the Republic of Liberia 23 F. Supp. 2d 439 (S.D.N.Y. 1998) ................................................................... 1 Merrill Lynch Ltd P 'ships Litig., 154 F.3d 56 (2d Cir. 1998) ................................................................................. 11 Minpeco, S.A. v. Hunt, Et.Al., 718 F. Supp. 168 (S.D.N.Y. 1989) ................................................................. 23 Neylan v. Moser, 400 N.W.2d 538 (S. Ct. Iowa,1987) ............................................................ .3,5,9 In Re Peregrine Financial Group Cust. Liti., 12-cv-05546 (N.D.III. 2015) ............................................................................. 5 Santos v. District Council ofN.Y.C., et. al., 619 F.2d 963 (2d Cir.l980) ............................................................................ 15 Schlanger v. Flaton 218 A.D.2d 597 (1st Dep't., 1995) l'v denied, 87 N.Y.2d 812 (1996) ..................................................................... 7 Shumsky v. Eisenstein, 96 N.Y.2d 164 (2001) ..................................................................................... 7, 9 Sidney Hellman Health Center of Rochester v. Abbot Laboratories, Inc. 782 F .3d 922 (7h Cir. 20 15) ............................................................................... 1 Simcuski v. Saeli, 44 N.Y.2d 442 (1978) ................................................................... 10,11,14,15 Skadburn v. Gately, 911 N.W.786 (Sup.Ct. Iowa 2018) .................................................................... 10 Stafford v. Int'l Harvester Co., Et. AI., 668 F.2d 142 (2d Cir. 1981) ..................................................................... 15,16,17 In Re Sumitomo Copper, 995 F. Supp. 451 (S.D.N.Y. 1998) .............................................................. 20,.23 -v- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 6 of 34 Page United States v. Turkette, 452 U.S. 576, 101 S. Ct. 2524(1981) ............................................................... 19 Vincent v. The Money Store 915 F. Supp.2d 553 (S.D.N.Y.2013) ................................................................ .2 Vossoughi v. Polaschek, 859 N.W.2d 643 (S.Ct. Iowa 2015) ............................................................. .2,.3 Zorn v. Gilbert, 8 N.Y.3d 933 (2007) ................................................... ; ....... · .................................. 8 Zumpano v. Quinn, 6 N.Y.3d 666 (2006) .......................................................................................... 10 Statutes 18 U.S.C.§1961 etseq .............................................................................................. 17, 18 18 U.S.C. §1964(C) ...................................................................................................... 18 Iowa Code § 614.1 ( 4 )(20 16) ........................................................................................... 2 Rules CME Rule 930 .............................................................................................................. 14 Federal Rules of Civil Procedure Rule 8 ...................................................................... 20 Federal Rules of Civil Procedure Rule 9 ..................................................................... .25 Federal Rules of Civil Pocudure Rule 9(b) ............................................................ .23,.24 N.Y.C.P.L.R. §202 ....................................................................................... 1,.2,15,16,17 N.Y.C.P.L.R. §214(6) ........................................................................................... 2,5,6,9 -vi- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 7 of 34 Page Miscellaneous Defendants' Memorandum of Law Doc.# 205 ............................................................. 2 Plaintiffs Memorandum of Law in Opp. To the Motions to Dismiss Doc. #15l,pp.l4-20 .............................................................................................. 14 Plaintiffs' Memorandum of Law in Opposition to Defendants' Motion to Dismiss Doc.# 151, pp.Sl-104 .......................................................................................... 18 -vii- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 8 of 34 PRELIMINARY STATEMENT Because Mr. Thomas has ignored the letter dated July 31, 2012, annexed to the Second Amended Complaint as Exhibit 22 which plausibly establishes a mutual understanding of the need to continue the attorney-client relationship with the Oelwein Class until apparently 2015, the claim for legal malpractice is proper. See Chambers v. Time Warner Inc., 282 F.3d 147, 153-154 (2d Cir 2002.)(Exhibits attached to the Complaint are part of the pleadings.) Because Mr. Thomas engaged in Fraudulent Concealment, and Plaintiffs continued to diligently unmask these claims; this case should be tolled as well. 1 The RlCO claims are also valid. ARGUMENT I. THE STATUTE OF LIMITATIONS DEFENSE SHOULD FAIL. Courts in this District have held consistently that "while a statute of limitations defense may be raised in a motion to dismiss ... such a motion should not be granted unless it appears beyond doubt that the [plaintiffs] can prove no set of facts in support of [their] claims which would entitle [them] to relief." Meridien Intern Bank, L. T.D. v. Government of the Republic of Liberia, 23 F. Supp. 2d 439,445 (S.D.N.Y. 1998.) In addition, defendants bear a heavy burden in establishing the Statute of limitations defense. See, In re Crude Oil, 913 F. Supp. 2d 41, 59 (S.D.N.Y 2012). Ordinarily, questions oftimeliness are left for summary judgment (or ultimately trial) at which point the court may determine compliance with the statute of limitations on a more complete factual record. See, Sidney Hellman Health Center of Rochester v. Abbot Laboratories, Inc., 782 F. 3d 922, 928 (71h Cir. 2015)(reversing dismissal of a civil RlCO complaint based on the statute of limitations' defense.) 1 For a recitation of the statement of facts, please refer to the Memorandum of Law in Support of the Cross-Motion submitted herewith. -1- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 9 of 34 Defendant Paul Thomas, Esq. has not sustained his initial burden to satisfY his entitlement to dismissal based on the Legal Malpractice Claim, because he has failed to properly state when his representation of the approximately 17 families of the Oelwein Class including the Schefferts, Behrens and Richard W ak:eford terminated. His argument that it ended two months after the NF A Arbitrations concluded or around April, 2009 is incorrect because this allegation is not contained in the SAC, ~713. See Defendants' Memorandum of Law Doc.# 205 at 2. Defendant did not consider the 24 Exhibits annexed to the SAC which were incorporated into the SAC. A. Defendant Has Failed to Establish His Statute of Limitations Defense Based on New York's Three Year Statute of Limitations Which Includes Equitable Tolling Even Assuming arguendo that C.P.L.R.§ 202 applies to the facts here, still the Legal Malpractice Claim is viable because the Borrowing Statute under C.P.L.R. §202 not only applies the three year Statute ofLimitations under C.P.L.R. §214(6), but also applies New York Tolling Provisions which in this case includes Equitable Estoppel Based on Fraudulent Concealment as well as the Continuous Representation Doctrine to save these meritorious claims. See Gordon & Co. v. Ross, 63 F. Supp. 2d 405,409{S.D.N.Y.l999), Vincent v. The Money Store, 915 F. Supp. 2d 553, 562 (S.D.N.Y. 2013). These Tolling Provisions are equally applicable under Iowa's 5 year Statute of Limitations regarding legal malpractice as well as the Discovery Rule which is also applicable in Iowa, although not in New York. See, See Iowa Code§ 614.1(4)(2016); Vossoughi v. Polaschek, 859 N.W.2d 643, 648 (S. Ct. Iowa 2015)(legal malpractice is defined as the last date when the legal malpractice became irreversible.) Notwithstanding tolling, a claim for legal malpractice accrues "when all the facts necessary to the cause of action have occurred and an injured party can obtain relief in court. " -2- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 10 of 34 Ackerman v. Price Waterhouse, 84 N.Y.2d 535, 541, 620 N.Y.S.2d 318, 644 N.E.2d 1009 (1994). Although a legal malpractice claim accrues when the injury occurs and not when it is discovered; the claim starts to accrue when the attorney-client relationship finally ceases and not when the client merely questions the attorney's conduct or doubts the attorney's performance, as is alleged in the SAC, ~713. See Glamm v. Allen, 57 N.Y.2d 87 (1982), accord, Neylan v. Moser, 400 N.W.2d 538, 542 (Sup. Ct. Iowa 1987) (Statute oflimitations accrues on legal malpractice claim when the result becomes irreversible.) Here, the actual date of accrual has not yet been established, thus dismissal is unwarranted, and Discovery should proceed to understand the facts and circumstances relevant for a jury to determine timeliness. See Louzoun v. Kroll Moss & Kroll, LLP. 113 A.D.3d 600,(2d Dep't 2014)(email message stating dissatisfaction with attorney did not commence the running of the Statute ofLimitations on Attorney Malpractice, but rather when Consent to Change Attorneys was filed); see also, Alizio v. Ruskin Moscou Faltischek, P.C., 126 A.D.3d 733, 734-735 (2d Dep't 2015)('"0n a motion to dismiss a complaint. .. on the statute of limitations ground, the moving defendant must establish, prima facie, that the time in which to commence the action has expired (citing cases).") In addition, because of the mutual understanding inAugust, 2012 that further representation was required, and Paul Thomas represented that he was going to continue with the claims, the case continued. See SAC, Exhibit 22, Letter of Paul Thomas, dated July 31,2012. Thus, because Mr. Thomas never established the accrual date on this legal malpractice claim, as his initial burden; therefore he is not entitled to dismissaL See Louzoun v. Kroll Moss & Kroll, LLP. 113 A.D.3d 600,(2d Dep't 2014) ("Documentary evidence may entitle a defendant to the dismissal of a complaint. .. but only where such evidence 'conclusively establishes a defense to the asserted claims as a matter of law"') accord, Vossoughi, supra, at 655. -3- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 11 of 34 Rather, Defendant, Mr. Thomas incorrectly states at page 2 of his Opening Brief, Doc. #205 that Plaintiffs decided not to proceed with Mr. Thomas within "two months" of the conclusion of their NFA Arbitrations which ended in approximately February, 2012. See Doc #205, p. 2, citing SAC, ,-r 713. Rather, ,-r713 of the Second Amended Complaint does not state any time frame at all, and the facts alleged suggest that it was much later than April, 2012 when Plaintiffs decided not to sign another retainer with Paul Thomas individually. However, a plausible explanation was clearly that Plaintiffs did not want to incur any more fees and expenses and wanted to wait to see how their new case developed, since Paul Thomas represented that he was going to continue prosecuting their legal actions against U.S. Bank. Therefore, construing all facts in favor of Plaintiffs and under the posture of a motion to dismiss, would require a finding that the attorney-client relationship was still developing, based on the July 31, 2012 letter annexed to the SAC as Exhibit 22. Therefore the claim of legal malpractice is also saved under the Continuous Representation Doctrine. See, Kuritzky v. Sirlin & Sirlin, 231 A.D.2d 607, 657 N.Y.S.2d 806 (2d Dep't 1996.) Defense counsel's mistake on page 2 of its Memorandum ofLaw In Support of Dismissal, Doc. # 208 that Plaintiffs terminated their attorney-client relationship with Paul Thomas only two months after the NF A arbitrations ended or by April, 2012 is demonstrated by the fact that Plaintiffs were not even aware that Mr. Thomas was continuing to work on their case, and it was not until at least August, 2012 when they received a letter dated July 31, 2012 from Paul Thomas informing them that he was continuing to work on their case and was continuing to represent the Class against a new defendant, U.S. Bank and based on new evidence that surfaced with the suicide note of Russell Wasendorf, Sn. in July, 2012. See SAC, Exh. 22. Therefore, reading the alleged facts in a light most favorable to Plaintiffs strongly -4- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 12 of 34 suggests that Plaintiffs decided to wait and see how the new legal proceedings were developing and continuing with Mr. Thomas. Because there was a clear mutual understanding that further action was necessary, and he had an opportunity to reverse the losses, the case should be tolled. Neylan supra, See Macaluso v. Del Col., 95 A.D.3d 959, 960, 944 N.Y.S.2d 589 (2d Dept 2012), McCoy v. Feinman, 99 N.Y.2d 295, 306 (2002.) To save costs, some of the Plaintiffs decided to file the two page Notice of Claim in the PFG Bankruptcy case prose around December 14, 2012. See SAC, ~713, Exh. 23. Plaintiffs' "wait and see" approach satisfies the Continuous Representation Doctrine because this Doctrine tolls the applicable Statute of Limitations not only where the attorney-client relationship is continuing, but also where it is continuing to develop as in this case. McCoy v. Feinman, 99 N.Y.2d 295, 306 (2002.) However, the exact date when Plaintiffs decided not to continue with Mr. Thomas as their individual attorney has not been established, has been misstated and requires discovery. But, such determination is not even necessary to allow the legal malpractice claim to proceed, because the July 31, 2012letter, SAC, Exh. 22 clearly demonstrates that Mr. Thomas was proceeding to represent the entire Oelwein Class, himself in the subsequent Class Action In Re Peregrine Financial Group Cust. Liti., 12-cv-05546, (N.D.Ill2015.) As such, Mr. Thomas did not need consent of each individual Class member, but only of the lead plaintiffs. Nonetheless, absent Defendants' explanation as to his continued representation of this subclass, he has not established any accrual date to which the three years statute of limitations would apply, and therefore this issue should await Discovery to clarifY the dates and times involved in this case. B. Plaintiffs Have Plausibly Alleged Tolling Under The Continuous Representation Doctrine and Based on Fraudulent Concealment To Toll -5- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 13 of 34 New York's 3 Year Statute of Limitations Under C.P.L.R. §214(6). Because Plaintiffs have properly alleged facts to support the application of two Tolling Provisions under C.P.L.R. §214(6), the claim for legal malpractice should proceed. Besides the well-recognized Continuous Representation Doctrine, the pleadings make clear that Equitable Estoppel based on Fraudulent Concealment also applies, because Paul Thomas cannot benefit from his own fraudulent conduct in attempting to cover-up his legal malpractice. His continuous fraudulent concealment of his own malpractice as is alleged in at least two letters he sent to Plaintiffs on February 10, 2012 and July 31, 2012 tries to lay all blame on the Twenty year Ponzi Scheme that had been revealed in July, 2012. See SAC, Exhs. 21, 22. Defendant has failed to acknowledge the letter of July 31, 2012 that states he continued to represent the Group apparently throughout the Peregrine Bankruptcy case and unsuccessfully at that. See Second Amended Complaint,("SAC"), Exhibit 22, Letter dated July 31, 2012 from Paul Thomas, Esq. 1. Because Paul Thomas continued to litigate their case, the claim against Paul Thomas was timely interposed in 2017. The SAC makes valid allegations that Defendant Thomas had an "ongoing, continuous, developing and dependant relationship" after the NF A arbitration proceedings ended in 2012. See McCoy v. Feinman, 99 N.Y.2d 295, 306, 755 N.Y.S.2d 693 (The continuous representations doctrine applies where "there is a mutual understanding of the need for further representation on the specific subject matter underlying the malpractice claim.") see also, Destaso v. Condon Resnick, LLP. 90 A.D.3d 809,936 N.Y.S.2d 5, 54 (2d Dep't 2011 )("[Continuous representation doctrine tolls the statute of limitations where there is a mutual understanding of the need for further representation on the specific subject matter underlying the malpractice claim (citing cases)." Farange v. Ehrenberg, 124 A.D.3d 159, 167 (2d Dep't 2014). -6- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 14 of 34 The Continuous Representation Doctrine is analogous to the Continuous Treatment Doctrine which tolls a plaintiff's right to sue a doctor for medical malpractice more than 2 Y2 years after the commission of the malpractice where the doctor has continued to treat the patient for the same condition upon which the malpractice action is based. See Shumsky v. Eisenstein, 96 N.Y.2d 164, 167-168 (2001.) Likewise under the Continuous Representation Doctrine, a client, like a patient, has a right to rely on the good faith conduct of his or her attorney, and does not have to interpose the malpractice action as long as the underlying proceedings are on-going or are continuing to develop, as in this case. The New York Court of Appeals explained in Shumsky v. Einsenstein, 96 N.Y.2d 164, 167 (2001): "'that a person seeking professional assistance has a right to repose confidence in the professional's ability and good faith, and realistically cannot be expected to question and assess the techniques employed or the manner in which the services are rendered. (Greene v. Greene, 56 NY2d 86, 94(1982)."' Accord, Schlanger, Et. Al. v. Flaton, 218 A.D.2d 597, 603 (1 51 Dep't 1995.) New York's Court of Appeals also recognized that a client being represented by an attorney cannot be expected to bring a malpractice claim against such attorney during the course of the representation: '"Neither is a person expected to jeopardize his pending case or his relationship with the attorney handling that case during the period that the attorney continues to represent the person .... , [T]he rule of continuous representation tolls the running of the Statute of Limitations on the malpractice claim until the ongoing representation is completed (Glamm v. Allen, supra, 57 NY2d. at 94.)"' Shumsky v. Einsenstein, 96 N.Y.2d 164, 167-168 (2001), see also, Macaluso v. Del Col. , 95 A.D.3d 959, 960, 944 N.Y.S.2d 589 (2d Dep't, 2012); see also, Louzoun v. Kroll Moss & Kross, LLP, 113 A.D.3d 600, 601, 979 N.Y.S.2d 94 (2d Dep't 2012.) -7- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 15 of 34 The Continuous Representation Doctrine is equally applied to developing relationships as well as fully-established relationships as in this case. See McCoy v. Feinman, 99 N.Y.2d 295, 306,755 N.Y.S.2d, Destaso v. Condon Resnick, LLP. 90 A.D.3d 809,936 N.Y.S.2d 5, 54 (2d Dep't 2011). Thus, the facts pleaded in the SAC plausibly establish a developing and continuing attorney-client relationship between Paul Thomas and the Class based on the letter of July 31, 2012 stating that Paul Thomas will be continuing to represent the Oelwein Class during the pending Bankruptcy Proceeding which settled in 2015. As such, the commencement of the three year Statute of Limitations for Legal Malpractice would have been tolled until 2018 under the Continuous Representation Doctrine when that subsequent proceedings ended with the 20 15-Class Settlement which did not include the Oelwein Class. Therefore, the instant case is timely since it was commenced in 2017 and within three years after the end of Mr. Thomas's continued representation of the Oelwein Class sometime in 2015. See C.P.L.R. § 214(6); Zorn v. Gilbert, 8 N.Y.3d 933, 934 (2007)(mutual understanding of continual representation tolls Statute of Limitations); Beroza v. Sallah Law Firm, P.C., 126 A.D.3d 742, 743 (2d Dept. 2015)(same.) Alternatively, drawing all inferences in favor of Plaintiffs establishes, there are questions of fact concerning Paul Thomas's continual representation ofthe Oelwein Class after the NF A proceedings terminated. Paul Thomas appears to continue to represent the Group until approximately 2015 based on the plain terms of the July 31,2012 Letter where Mr. Thomas states that he plans to continue to represent the Class against the Bank: "[W]e have a very good opportunity to move forward on your case against the bank which has billions of dollars in assets. Now we will be able to get you a settlement. ... .I will be putting all of your claims together into one large case for settlement. The bigger the case the more leverage I will have in settling it for you. This way the recovery will be much higher than any of you on your own could ever get. I will be personally handling your case and look forward to working with you again and getting a positive result -8- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 16 of 34 this time. [Emphasis Added.] See, SAC, Exh. 22, Letter of Paul Thomas, Esq. Dated July 31, 2012. Thus, even if the July 31, 2012letter does not show continuous representation, it shows that his representation was continuing to develop which also satisfies the Continuous Representation Doctrine. Applying Iowa law, Attorney Thomas still had an opportunity to reverse the damages therefore allowing tolling. See, Neylan v. Moser, supra. And, even ifthe Plaintiffs had not signed the new retainer with Paul Thomas, Esq. to save costs for themselves, as alleged in the SAC, ~713, they were still being protected by Paul Thomas's representation, and at any time could have rejoined the Class. Therefore, the attorney-client relationship was continqing to develop; and tolling is appropriate until the case finally terminated in 2015.2 Furthermore, the Continuous Representation Doctrine applies because the continuing representation in 2012 related to substantially the same case as the NFA Arbitration including the damages. Even though the theories of liability had shifted to a new defendant, U.S. Bank, the Continuous Representation Doctrine should still apply because the same trading losses were claimed. See Deep v. Boies, 121 A.D.3d 1316, 1320 (2d Dep't 2014)(Court considered whether attorney had offered further representation to toll statute of limitations); Shumsky v. Eisenstein, 96 N.Y.2d 164, 168 (2001). 2. Equitable Estoppel based on fraudulent concealment applies , based on 2Thomas continues to suggest in the July 31, 2012 letter that he is pursuing the Class's claim, and he asks each individual Class member to ratify his continued representation of each member of the Class as well as the Group. However to the extent that he is representing a sub- class, he could still proceed on behalf of the entire group notwithstanding the lack of retainers. -9- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 17 of 34 misrepresentations to cover up Mr. Thomas's own malpractice. Because New York Law like Iowa law is clear that an attorney who attempts to fraudulently conceal his own malpractice will be estopped from asserting the Statute of Limitations Defense, here too Equitable Estoppel based on Fraudulent Concealment should be applied to save this meritorious claim for legal malpractice. The Fraudulent Concealment must be distinct from the legal malpractice as it is in this case. Zumpano v. Quinn, 6 N.Y.3d 666, 673- 674 (2006). In Zumpano, The New York Court of Appeals set forth: Our courts have long had the power, both at law and equity, to bar the assertion of the affirmative defense of the Statute of Limitations where it is the defendant's affirmative wrongdoing ... which produced the long delay between the accrual of the cause of action and the institution of the legal proceeding' (General Stencils v. Chiappa, 18 N.Y.2d 125, 128,272 N.Y.S.2d 337.219 N.E.2d 169 [1966] ). Thus, this Court has held that equitable estoppel will apply 'where plaintiff was induced by fraud, misrepresentations or deception to refrain from filing a timely action (Simcuski v. Saeli.44 N.Y.2d 442.449,406 N.Y.S.2d 259, 377 N.E.2d 713 [1978] ). Moreover, the plaintiff must demonstrate reasonable reliance on the defendant's misrepresentations (see Simcuski. 44 N.Y.2d at 449. 406."' Accord, Skadburn v. Gately, 911 N.W.2d 786 (Sup. Ct. Iowa 2018.) Although Equitable Estoppel based on Fraudulent Concealment is an Extraordinary Remedy, the facts presented in the SAC satisfy this requirement because victims of a ponzi scheme rank high on the list of extraordinary wrongdoing. Although, there are arguably worse events that have occurred or are presently occurring to other members of the public who may have little recourse, no one should deny the extraordinary gravity of what these Plaintiffs experienced by losing: (1) their life-savings that took hard and honest work to achieve over a life-time; (2) their self-esteem, (3) a cushion of funds to pay for things like health care, and ( 4) a sense of well-being due to an onset of feelings of anxiety and depression and in one case consequential physical injuries. Ultimately a jury should judge this case. However, for purposes of this Motion, the extraordinary nature of this case should not be gainsaid. -10- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 18 of 34 Here, even assuming arguendo that the legal malpractice ended in February, 2012 when the NF A Arbitrations failed, Plaintiffs had no idea that besides being victims of a Ponzi Scheme, they were also the victims of Paul Thomas, Esq.'s legal malpractice, because the allegations demonstrate that Paul Thomas, Esq. fraudulently concealed his own malpractice and used material misstatements to shine a spot-light far away from his own negligent conduct which could not be discovered until such time when the NF A Statements of Claim, Discovery and NF A Orders and Hearing Transcripts were fully reviewed and analyzed in 2017. When the claim appeared sound, and after a full review of the case, it was timely interposed against Mr. Thomas. To establish Equitable Estoppel based on Fraudulent Concealment in New York requires: (1) subsequent fraudulent statements made to cover up the attorney's malpractice and (2) Reliance. Merrill Lynch Ltd. P'ships Litig.,, 154 F.3d, 56,60 (2d Cir.l998.) In addition, where the relationship is a fiduciary one, as in this case, between attorney and client, the attorney's failure to disclose relevant information is also considered Fraudulent Concealment, just like in a medical malpractice case, for example, where the doctor fails to inform his patient that he received the wrong medication making the patient sick and requiring further medical treatment. See Simcuski v. Saeli, 44 N.Y.2d 442,446 (1978); Butala v. Agashiwala, 916 F. Supp. 314,320 (S.D.N.Y.l996)(Fraudulent concealment can be based on self-concealment.) a. Paul Thomas' fraudulent concealment of his own malpractice is based on the letters of February 10, 2012 and July 31, 2012. A review of the SAC's allegations demonstrate that Plaintiffs have sustained their burden to establish Fraudulent Concealment. See SAC, Exh. 22, 23. Paul Thomas, Esq. certainly did not want the clients to suspect that he was committing legal malpractice. The malpractice in this case included his: (1) dropping of the claim relating to Margin Rule Violations by PFG, (2) failure to show the trading strategies were entirely inappropriate for these -11- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 19 of 34 portfolios and were bound to lose all value, (3) failure to have an expert review or testify concerning the falsified trading records that did not reflect market realities but showed phantom trading and false margin calls, and (4) failure to sue the Maxwells. SAC~~661, 668-682, By not having an expert carefully analyze and review the trading statements, which would have clearly exposed this two-bit ponzi scheme, Paul Thomas, committed clear legal negligence when he wrote to the Group shortly after their NF A Arbitrations failed. He covers up his obvious misfeasance by explaining in his letter of February 10, 2012, SAC, Exh.21 the reason for the outcome: "The NF A is obviously in bed with the brokers they are supposed to regulate to protect people like you ... " He continues to deflect blame for the result by prevaricating to the Schefferts that he spent $160,000.00 of his own funds on the case. A close reading of the February 10, 2012 letter appears to show that what he probably means is that he billed fees that would have amounted to $160,000.00. Certainly a contingency fee attorney cannot state that he spent $160,000.00.00 on a case when in reality he failed to realize that amount as profits or legals fees. But, he tells the clients he lost his own money to fraudulently conceal the fact that he contributed to the outcome by neglecting to properly litigate the case. He continues to explain the unfortunate result: "I have no regrets because I believed in your case and went down fighting. It has nearly bankrupted my firm in the process." See SAC, Doc. #103, Exh. 21. His statement of no regrets is certainly more fraudulent concealment because it makes it look as if he went down fighting or tried to do everything possible to prevail when the evidence shows that he actually dropped one meritorious claim he had that PFG violated its own -12- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 20 of 34 margin rules which would have saved the clients accounts. See SAC, Exhibit 18 , Paul Thomas, Esq. Letter dated April 1, 2009. This statement in addition to the false notion that he spent his life-savings for the clients' sake gave an extremely false impression that he did everything possible to present properly the claims in this case, even though there was no evidence presented to show PFG's lack of supervision over the trading strategies of the brokers and the nature of this reckless option trading strategy that was bound to fail eventually. See NFA Order 12-BCC-001 SAC Exh.lO. This Fraudulent Concealment continues through the Summer of2012. After the Ponzi Scheme was finally unmasked, Paul Thomas, Esq. has to step-up his game to conceal his own malpractice now that it is revealed that a massive ponzi scheme was ongoing. He decided to send another letter to the Class, now telling them that he will continue to protect their rights·by making a claim against Defendant U.S. Bank. See SAC, Exhibit 22. The July 31, 2012 letter also fraudulently conceals his prior malpractice because had he done his job, the Ponzi Scheme would have been revealed by his own experts' realizing the account statements were falsified. He blames the lost NF A arbitrations on collusion between NF A and Wasendorf, Sn., and where the NF A allowed this corruption to continue. He recites all the perceived corruption that effected the NF A outcomes. These statements clearly are intended to divert attention from his own conduct in failing to bring the correct claims. He goes on to divert Plaintiffs from realizing his misfeasance by saying: "I want you to understand that the long, costly, and frustrating experience we had at the NF A will not be repeated We anticipate getting your claims settled."[Emphasis in the Original.] See, SAC, Doc. #103, Letter, dated July 31,2012 Exh. 22. Again, this puffery is meant to continue to develop an attorney-client relationship -13- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 21 of 34 and to cover-up the prior mistakes that led to the wrong outcome. To the extent that any of the statements regarding the corruption of the NF A are true and correct, this does not defeat their use as evidence of Fraudulent Concealment, because the intent of the statements was to deflect Plaintiffs from understanding that Paul Thomas, Esq. contributed to the poor results by not doing his job, by neglecting to raise proper claims, by failing to marshall the correct evidence and by ignoring his duty to retain a qualified expert to evaluate the underlying trades that should never have been made or allowed to be made by PFG who had supervisory authority over these accounts as a Future Commission Merchant. Because the Plaintiffs diligently pursued their claims and finally got their documents from the NF A and after a careful review of the case continued diligently to press their claims, their claims are valid and properly tolled. See Plaintiff's Memorandum of Law In Opp. To the Motions to Dismiss, Doc. # 151, pp. 14-20 which is fully incorporated by reference herein. b. Because the legal malpractice claim is distinct from the fraudulent concealment claim, equitable tolling is appropriate. Because the legal malpractice is distinct from the fraudulent concealment, the tolling provision is valid. Simcuski v. Saeli, 44 N.Y.2d 442,448 (1978). Here, the gravamen of the legal malpractice claim is that Attorney Thomas failed to pursue the correct claims and present the correct evidence on the claim that PFG's failed to stop all trading in each Plaintiffs account based on "Margin Calls." PFG's Customer Handbook adopted CME Rule 930. SAC ~~ 668-673; SAC Exh. 19, Paul Thomas Letter dated June 2, 2008. His failure to proffer expert testimony as to the inappropriate trading strategies and failure to review the trading statements to show the misconduct in the accounts is evidence of malpractice. SAC ~ 689. According to the PFG Customer Handbook, PFG could have shut down all trading in the Schefferts' account during the week of October 1, 2008, and under normal conditions, any rational FCM would have -14- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 22 of 34 suspended trading or closed the accounts in light of the Margin Calls, when they arose on or about October 3, 2008. Rather, the evidence showed that there was continued trading which eventually depleted the entire account by October 8, 2008. This claim would have required the assistance of an expert witness to review the false account statements to explain the inappropriate trading strategies. By contrast, the statements constituting Fraudulent Concealment occurred after the conclusion of the cases in February, 2012 and July, 2012. See SAC, 21,22. Therefore, the Fraudulent Concealment is distinct from the legal malpractice which ended on or about February, 2012. See, Simcuski v. Saeli, 44 N.Y.2d 442,448(1978), Johnson v. Proskauer Rose LLP, 129 A.D.3d 59 (1st Dep't 2015), Berman v Holland & Knight, 156 A.D.3d 429 (1st Dep't 2017). II. THIS COURT IS NOT OBLIGED TO APPLY C.P.L.R. §202 TO THIS PENDANT STATE LAW CLAIM, THUS THE LEGAL MALPRACTICE CLAIM IS TIMELY UNDER IOWA LAW. Because Defendant Perry Comeau resides in Iowa, there is not complete diversity in this case, and certainly Plaintiffs have not entered this forum hoping to take advantage of New York's three year, less favorable, statute oflimitations than Iowa's more favorable 5 year statute of limitations that also includes the Discovery Rule. Therefore, there is no good reason to apply New York's Borrowing Statute, CPLR §202 to Paul Thomas, a California resident because C.P.L.R. § 202 was specifically meant to protect New York residents from forum shopping in diversity cases. In this case, Paul Thomas traveled to Iowa to present himself to Plaintiffs and to represent these Plaintiffs who never left the state of Iowa, until they were forced in part by Paul Thomas's alleged mishandling of the case, to travel to Chicago, Illinois on separate occasions for their doomed NFA Hearings. Additionally, because the Borrowing Statute, C.P.L.R. §202 -15- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 23 of 34 appears to be purely a procedural rule, and interferes with the application of the Choice of Law Rules, this Federal Court need not strictly apply it. See Stafford v. lnt 'l Harvester Co., Et. Al.,668 F.2d 142 (2d Cir. 1981); Santos v. District Council, 619 F.2d 963,967,968 (2d Cir. 1980)(Federal Courts need only apply their own procedural rules.) In fact, to now apply the Borrowing Statute would actually create a conflict whereby this Court would normally apply New York's Choice of law rules to this Pendant State law claim sounding in Legal Malpractice. Applying New York Choice of Law rules would require the application ofiowa's Statute of Limitation, since a federal court applies the substantive law of the state with the greatest interest in the case including that state's statute of limitations. Guaranty Trust Co. v. York, 326 U.S. 99 (1945.). Traditionally, this Court would apply Iowa law to this pendant legal malpractice claim since Plaintiffs suffered economic losses in the State ofiowa. See Gordon & Co. v. Ross, 84 F3d 542 ( 2d Cir 1996); Global Financial Corp. v. Triarc Corp., 93 N.Y.2d 525,528 (1999). However, strict application of C.P.L.R. §202 would mandate the application ofNew York's less favorable statute oflimitations. The Second Circuit at least once has refused to strictly apply New York's Borrowing statute, CPLR § 202, in a somewhat analogous circumstance including multiple states and multiple parties, and recognized that C.P.L.R. §202 need not be "rigidly" or "mechanically" applied." See Stafford v. Int'l Harvester Co., Et. Al., 688 F.2d 142, 148 (2d Cir. 1981.) In Stafford v. Int'l Harvester Co., Et. Al., 688 F.2d 142, 148 (2d Cir. 1981), the Second Circuit reversed the District Court's application of Pennsylvania's Statute of Limitations under C.P.L.R. § 202 where a personal injury accident had occurred in Pennsylvania which the lower court determined to be the applicable state law in that diversity case. However, because plaintiffs were from New Jersey, and no party was located or subject to jurisdiction in Pennsylvania; the Second -16- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 24 of 34 Circuit reasoned that Pennsylvania's shorter statute of limitations should notbe applied and in effect disregarded C.P.L.R. §202 and did not allow a strict application of §202 which would have barred one of the claims. It reasoned that to apply Pennsylvania law under New York's Borrowing Statute would not further the intent of the New York State legislature to discourage forum shopping whereby an out-of-state plaintiff could sue a New York resident based on New York's more favorable statute of limitations. The Court of Appeals reasoned that because Stafford could never have been brought in Pennsylvania, it was imprudent to borrow its shorter statute of limitations and in effect applied a choice of law analysis considering the center of gravity test. Therefore, to give breadth to New York's Choice of Law rules, the Borrowing Statute under CPLR §202 was not applied rigidly or at all in that case. By the same token, in this case, there is no good reason to apply the Borrowing Statute where neither Plaintiffs nor Defendant Paul Thomas are from New York, because no New York state resident's rights are being affected which was the predominant reason for enactment of the Borrowing Statute in the first place. Furthermore, Legislative intent is not being furthered in any way in this case by applying the Borrowing Statute, because none of the Plaintiffs have entered New York to take advantage ofNew York's Legal Malpractice Three Year Statute of Limitations; and in fact, they be better off under Iowa's more favorable Five Year Statute of Laminations for legal malpractice plus tolling. Furthermore, because CPLR §202 is traditionally applied to Diversity cases, and the legal malpractice claim is a Pendant State Claim, there is more reason not to rigidly apply the Borrowing Statute under the totality of the circumstances at issue herein. In short, a strict application of C.P.L.R. §202, will negatively effect a fair application of the traditional Choice of Law rules applying Iowa law to this Pendant State claim. -17- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 25 of 34 Thus, under an Interest Analysis Test, Iowa law should be applied and the 5 year Statute of limitations for legal malpractice that also considers the Discovery Rule should be applied to allow the legal malpractice claim to proceed, since it could not have been discovered until at the earliest in 2017 when the case was fully underway, and Plaintiffs' counsel realized that complete relief could not be obtained without joining in Mr. Thomas. III. THE SAC PROPERLY MET APPLICABLE PLEADING STANDARDS TO SATISFY 18 U.S.C. § 1961, ET. SEQ., WITH RESPECT TO PAUL THOMAS. With respect to the RICO case, Defendant Thomas has not argued that this claim is untimely because Plaintiffs are entitled to a four years statute of limitations plus tolling based on the discovery rule. See, Koch v. Christies Intern, PLC, 699 F.3d 141, 242 (2d Cir. 2012.) Because all of the elements of the RICO Claim have been plausibly stated, this claim should proceed. To state a claim for RICO under 18 U.S.C.§ 1961, Et. Seq. requires allegations that: (1) the defendant, (2) through the commission oftwo or more acts (3) constituting a pattern (4) of racketeering activity (5) directly or indirectly invests in, maintains an interest in, or participates in ( 6) an Enterprise (7) the activities of which affect interstate commerce. Plaintiffs also must allege that they were injured in their business or property by reason of the construct. 18 U .S.C. § 1964(C). Here, Plaintiffs have satisfied their pleading burden. See, In re Sumitomo Copper, 995 F. Supp. 451,454 (S.D.N.Y. 1998.) In evaluating these elements, courts have liberally read the RICO statute to give breadth to the clear intent of Congress to eradicate group activity that includes either or both entities and individuals who come together through an Enterprise to commit a pattern of unlawful -18- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 26 of 34 conduct. Therefore for example a bad actor no matter how heinous the conduct, is not a RICO violator, if he acted alone and committed one not two crimes. See Behrens v. JPMorgan, Et. AI., 16-cv-5508 (S.D.N.Y. 2016), Plaintiffs Memorandum of Law in Opposition to Defendants' Motion to Dismiss Doc.# 151, pp.81-104. With respect to Paul Thomas, Esq. the allegations in the SAC in combination with the Exhibits attached meet this criteria. First, the SAC alleges that Paul Thomas, Esq. represented the Investor Group from approximately 2009 through at least 2012, a four year period that would have continued but for the termination ofPFG as an ongoing Entity, and therefore satisfies RICO's continuity requirement. See Cofacredit v. Windsor Plumbing Supply Co., 187 F.3d 229, 243-243 (2d Cir. 1999)(Closed-end continuity established based on a two year scheme; and open-ended continuity established where activity is inherently unlawful.)3 Because the pattern ofRacketeering Activity as alleged included in excess of two acts committed within a ten year period, the RICO claim is validly pleaded as well. See H J. Inc. v. Northeastern Bell Telephone Co., et al., 109 S.Ct. 2893,2896 (1989). A. The SAC amply Establishes an Association-in-Fact Enterprise In Which Paul Thomas, Esq. Participated. The SAC adequately alleges a RICO Association-In-Fact Enterprise in which Paul Thomas participated to ensure that no Claimant would ever prevail at an NF A Arbitration against PFG to recoup their losses. See, SAC,~ 693. This Association-in-Fact Enterprise was also related to the other Association-in-Fact Enterprise consisting of PFG, Wasendorf, Sn. and the Bank Defendants who in the first part of the Ponzi Scheme allegedly converted customer monies for their own purposes and not for purposes of the customers. In part two of this RICO Ponzi 3 Therefore, the SAC has established both open-ended and closed-ended continuity. -19- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 27 of 34 Scheme, another Association-in-Fact Enterprise emerged including Russell Wasendorf, Sn. Russell Wasendorf Jr., PFG, Perry Comeau, the Maxwells and Paul Thomas, Esq. This Association-in-Fact Enterprise met the legal requirements of a RICO Association-in-fact Enterprise because it had (1) a common purpose, (2) relationships among those associated with the Enterprise, and (3) longevity sufficient to permit these associates to pursue the Enterprises purpose. See United States v. Turkette, 452 U.S. 576, 583 (1981)(holding: an association-in-fact enterprise is "a group of persons associated together for a common purpose of engaging in a course of conduct." Pleading of Association-in-Fact Enterprises have been liberally construed. See Breslin Reality Development Corp. v. Schackner, 397 F. Supp.2d 390, 403 (E.D.N.Y. 2005)(finding the enterprise element adequately alleged, as a plaintiff need comply only with the notice pleading set forth in Fed. R. Civ. Pro. 8 to allege enterprise); See also In re Sumitomo Copper, 995 F. Supp. 451,454 (S.D.N.Y. 1998.) 1. The Association-In-Fact Enterprise had a common purpose. First, regarding common purpose, the SAC describes that for over four years from at least 2009 to 2012 Paul Thomas, Esq. worked together with the PFG, Perry Comeau, Russell Wasendorf, Sn. and Russell Wasendorf Jr. and the Maxwells to make sure that no customers would ever prevail in their NF A Arbitrations which under normal circumstances would have provided full compensation to Plaintiffs for their trading losses. See SAC Exhibits 15, 18, 20, 21, 22. The other common purpose of this Association-in-Fact Enterprise in which Paul Thomas shared a common purpose was at all costs to avoid discovery of any evidence that could lead to discovery of the first part of the on-going PFG Ponzi Scheme. Had discovery been robust in the NF A arbitrations, such discovery could have unmasked the underlying Ponzi Scheme. Had any economic expert reviewed the actual trading statements and trading strategies employed by the -20- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 28 of 34 other RICO Defendants including the use of out-of-the money puts and calls which are destined to lose, this Scheme would have been revealed especially when false margin calls were seen in the accounts. By avoiding any claims, such as the claim that PFG violated its own Margin Trading Rules in allowing the Scheffert's account to be traded during the first week of October, 2008, Paul Thomas participated in this Enterprise by assisting the others in masking the damning evidence to expose the Ponzi Scheme. This evidence was hiding in plain sight because as part of any NF A proceeding, a review of the PFG trading records would have readily revealed that the trading records were falsified, the balances were wrong, the margin call activity was made up, and that there were other indicia of an on-going, twenty-year Ponzi Scheme. To ensure the success of this twenty year ponzi scheme, Paul Thomas also participated by dropping claims from the case that would have demanded discovery into PFG's actual trading practices as part of these omnibus sub-accounts because any expert review would have revealed the fictitious nature of the trades, fake margin calls, phony balances and other incongruencies which would have required further investigation to reveal this massive Ponzi Scheme. The Claimants who are mostly unsophisticated seniors were tricked into believing that their losses were due to natural market volatility and normal market risk, when all the while they were the victims of a massive ponzi scheme, as were many others. Therefore, it is essential that the RICO claim be sustained against Paul Thomas, Esq. so that the entire RICO Ponzi Scheme can be properly discovered. 2. Relatedness has been plausibly alleged to describe this Association-in-fact Enterprise. Because the SAC pleads facts to show relatedness between and among members of this Association-in-fact Enterprise, the Association-in-fact Enterprise is also -21- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 29 of 34 established. Clearly, the SAC shows relationships between and among Perry Comeau, who was registered with the NF A, Paul Thomas, Esq. who arbitrated at the NF A, and litigated against PFG. Russell Wasendorf, Sn. was allegedly an Advisory Board Member of the NFA during the relevant time period, and therefore had substantial influence in directing decisions made by the NF A such as who to appoint as arbitrators to its panels, where to conduct hearings, whether to consolidate hearings and other important procedural and substantive aspects ofNFA arbitrations that could influence a result in one direction or the other. This Court can also take judicial notice of a fact in the public record that not one NF A arbitration involving PFG ever prevailed in 17 years, where the losses claimed were in excess of$100,000.00 requiring a three-member arbitrations panel showing the Ponzi Scheme's effectiveness. See,NFA Report, Declaration of Susan J. Levy, Esq. Dated July 13, 2018, Doc.#208, Exhibit 12. 3. The Enterprise alleged is separate and apart from the pattern of racketeering activity. Because Paul Thomas, Esq. is one RICO Defendant, he is clearly separate and apart from the Enterprise which was a group of individuals, unified to ensure that no claimant ever got their money back in an NF A Arbitration. Paul Thomas, Esq. participated in the Enterprise by litigating these cases until finally disposing of these cases and making sure the outcome was in favor ofPFG. By having the Plaintiffs sign retainers, he had control over the Enterprise with respect to the outcomes of the case because he could control the Claimants' cases and steer the case in a losing direction, as he did. He acted through the Enterprise by engaging in multiple predicate acts of mail fraud and wire fraud as part of this Scheme to defraud the Claimants; and the annexed letters to the SAC show much more than two predicate acts within 10 years which is.all that is required to meet the RICO pleading threshold. See, SAC Exhibits 18, 19, 20, 21, 22. -22- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 30 of 34 C. Because Paul Thomas, Esq. In Furtherance of The Enterprise Committed More than Two Acts of Mail Fraud and Wire Fraud within a 10 Year Period, The Predicate Acts Have Been Satisfied. Defendants' argument that Plaintiffs have not alleged the mail and wire fraud predicates with specificity is belied by the record which ( 1) ignores established law in this Circuit addressing the proper standards alleging fraud under Rule 9(b ); (2) describes with particularity that the fraudulent misrepresentations and omissions made in furtherance ofthe Scheme, and (3) misunderstands that Plaintiffs did not have to rely upon the fraudulent misrepresentations and/or omissions. Regarding the first two issues, courts in this Circuit have recognized an ~xception to the requirements in civil RICO cases such as the instant case. See Angermeir, Minpeco, S.A. v. Hunt, Et. AI., 718 F. Supp. 168, 178 (S.D.N.Y. (1989). The court in Angermeir stated that normally "[a]llegations of predicate mail and wire fraud acts ... state the contents of the communications, who was involved, [and] where and when they took place, and [should] explain why there were fraudulent." But, Courts in the Second Circuit have applied a different standard in cases where: "a plaintiff claims that ... mails or wires were simply used in furtherance of a master plan to defraud," but does not allege that "the communications [themselves] ... contained false or misleading information." Angemeir, 14 F. Supp. 3d at 145, citing, Sumitomo Copper, 995 F. Supp. 451 (S.D.N.Y. 1998.) The Angemeir court held that in such cases, including "complex civil RICO actions involving multiple defendants, Rule 9(b) does not require that the temporal or geographic particulars of each mailing or wire transaction made in furtherance of the fraudulent scheme be stated with particularity." I d. Instead, Rule 9(b) requires only that the plaintiff delineate with adequate particularity in the body of the complaint, the specific circumstances constituting the overall fraudulent scheme." ld at 146 (citing cases); see also, Jordan (Bermuda) Inv. Co. Ltd. v. Hunter Green Investment Ltd. 154 F. Supp. 2d 682,692 -23- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 31 of 34 (S.D.N.Y. 2001)(stating that Rule 9(b) only requires that a plaintiffplead the intent element of fraud in general terms.) Thus, this case at bar alleges mailing and wirings to satisfy this standard. See SAC Exhibits, 15, 18, 19, 20, 21,22, because these letters were clearly "in furtherance of a master plan to defraud." Angermeir, 14 F. Supp.3d at 145, citing In re Sumitomo Copper, 995 F. Supp. 451 (S.D.N.Y. 1998.) Therefore, in the Second Circuit, Plaintiffs have met their pleading burden as described based on the ample pleadings describing the Fraudulent Scheme. In this case, the letters annexed as Exhibits to the SAC do more than what is required to establish their RICO case based on wire and mail fraud; and makes out a case for a scheme to defraud using the wires and mails in interstate commerce where Paul Thomas, Esq. convinces the Plaintiffs that their cases were being properly handled when in fact these cases were a charade. See SAC Exhibits, 15, 18, 19, 20, 21,22. Paul Thomas, also uses the mails and wires to actually file his NF A pleadings and documents which doom Plaintiffs' case such as the "Third and Final Statement of Claim" dropping the valid claim against PFG for violating margin rules. How would Mr. Thomas have known that the Third Statement of Claim was the "Final" Statement of claim if he had not intentionally orchestrated the entire Arbitration? For example, Paul Thomas to lure the Schefferts into this Scheme to Defraud needed signed retainers to take control of the case. He misrepresents in a letter to them dated April1, 2009 that "Peregrine Financial Group violated exchange margin rules." He tells them: "I am very confident we can prove serious margin violations by Peregrine Financial which should result in a very satisfactory resolution of the case in your favor." See SAC Exhibit 19. He also repeats this legal theory to the Schefferts in a letter dated June 2, 2009: "Our case against the clearing firm Peregrine Financial Group (PFG) is for violation of margin rules. PFG is required as an Exchange Member to follow the -24- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 32 of 34 rules of every Exchange where it clears trades. In your case, it was the Chicago Mercantile Exchange ( CME) for S & P 500 futures contracts. The CME requires firms like PFG to take action when an account gets a margin call. Either money needs to be collected or positions need to be liquidated to get the account off margin call. PFG did nothing and your accounts were destroyed as a result." See SAC, Exhibit 19, Paul Thomas, Esq. Letter dated June 2, 2009 , However, after the Schefferts did sign his retainer, he eventually dropped that valid claim regarding PFG's Margin Call violations in the "Third and Final Statement of Claim." Even though the NF A had allowed this claim to proceed, Paul Thomas in furtherance of the Scheme to Defraud dropped this valid claim to make sure the case lost as it did. Therefore, the statements in the letters of April 1, 2009 and June2, 2009 are examples of fraudulent misrepresentation in the Scheme to defraud that were sent through the mails. D. Because the SAC Properly Alleged RICO Proximate Causation, the RICO Claim Should Stand. Because the Fraudulent Scheme proximately caused Plaintiffs NFA Arbitrations to fail, they did not recover compensation in the NF A Arbitrations and therefore the Scheme is properly alleged to be the proximate cause of their Injury. See Plaintiffs Memorandum of Law In Opp. To Defendant's Mot. To Dismiss. Docket. #151, pages 96-97. IV. ALTERNATIVELY, PLAINTIFFS REQUEST AN OPPORTUNITY TO RE-PLEAD TO CURE ANY DEFICIENCIES, IF NECESSARY. To the Extent that this Court finds pleading Fraud under Rule 9 is inadequate or any other elements in the SAC, Plaintiffs respectfully request leave to re-plead. See Caputo v. Pfizer, Inc., 267 F.3d 181, 191-193 (2d Cir. 2000.) CONCLUSION Based on the Foregoing, Defendant Paul Thomas, Esq.'s Motion to Dismiss should be denied in full. -25- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 33 of 34 Dated: September 28, 2018 Respectfully Submitted IS/Susan J. Leyy Susan J. Levy, Esq. Attorneys for Class Plaintiffs and Class Members 40 East 1Oth Street Suite 2K New York, New York 10003 Tel: (212) 962-1782 Fax: (212) 962-3711 -26- Case 1:16-cv-05508-VSB Document 225 Filed 09/28/18 Page 34 of 34