October 31, 2018
In today's BrokeAndBroker.com Blog, we literally got it all. We have a fraudulent real estate company that apparently crashed and burned. We got a brother touting that company as an investment to his sister, a financial advisor, who, in turn, apparently touted it to her customers and her father, who lost a bundle. We got a criminal prosecution. We got a FINRA arbitration. We start off with a lawsuit in state court but wind up in federal court, and from there in federal appeals court. We got all sorts of allegations and defenses about prosecutorial misconduct and failure to supervise and statutes of limitations. It's exhausting to read through it all. It was equally exhausting to research the facts and write it up. I would suggest you get a strong, black cup of coffee before you start reading. While you're up, maybe get a donut -- why not?
Case In Point
In December 2000, Jennifer Wilkov was hired by Ameriprise Financial Services as a financial advisor; and in 2004, she became a Franchisee. In 2004, Wilkov was investigating a possible investment in California real estate with CPM Holdings that was referred to her by her brother. Apparently, Wilkov believed that Ameriprise was required to review all family-member transactions but when she informed her compliance supervisor of her CPM investment, she was purportedly told that the firm did not invest in real estate and, accordingly, she was "on her own."
January 2005: CPM Investment Solicitations
In January 2005, Wilkov began soliciting investors for investments in CPM Holdings. Wilkov allegedly had failed to disclose to her Ameriprise clients that she was receiving commissions from CPM, which totaled $142,000. Further, Wilkov falsely told her Ameriprise clients that she had worked with CPM and its principals in the past and had done due diligence -- in fact, she apparently had no basis whatsoever for recommending the company or its investments.
August 2005: Wilkov Leaves Ameriprise
In August 2005, Wilkov's association with Ameriprise ended.
2007: Civil Asset Forfeiture and Escrow
In 2007, the New York County District Attorney ("NYDA:) commenced a civil asset forfeiture proceeding against Wilkov, who was ordered to liquidate her apartment and provide the proceeds to the DA, which resulted in $190,192.22 being placed in escrow from which funds were paid to Wilkov's lawyers and to her victims.
2008: Guilty Plea
On January 22, 2008, Wilkov pled guilty in New York State court to multiple fraud-related charges after CPM was revealed to be a fraud and her investors lost all of their money.
2009: Howard Wilkov FINRA Arbitration
In June 2009, Wilkov's father, who allegedly lost over $1 million through CPM investments, filed a FINRA Arbitration Statement of Claim (and as amended thereafter) against Ameriprise. Howard R. Wilkov, M.D. and the Wilkov Family Limited Parntership, Claimants, v. Ameriprse Financial Services, Inc., Respondent, vs. Jennifer Wilkov, Third-Party Rspondent (Decision, FINRA Arbitration 09-03961, May 25, 2011) http://www.finra.org/sites/default/files/aao_documents/09-03961-Award-Public%20Arbitrator%20Pilot%20Program-20110525.pdf Claimant Howard Wilkov asserted securities fraud, common law fraud, negligence, unjust enrichment and breach of contract. Claimant sought $1.023 million in damages plus interest, costs, and attorneys' fees.
Respondent Ameriprise generally denied the allegations; asserted various affirmative defenses; and asserted a Third-Party Statement of Claim against Jennifer Wilkov for failure to disclose, breach of franchise agreement, fraud, and withholding material facts. Ameriprise requested that if the Panel
determined that some or all of the Claimant's allegations regarding it are true, that Third-Party
Respondent Wilkov should be held liable to it for the full amount of any
award issued plus costs, expenses, attorneys'
fees incurred, and any other damages suffered by it.
At the end of Claimants' case, Respondent Ameriprise moved to dismiss based upon Florida law which it asserted implied knowledge of a limited partner to the limited partnership, and contributory negligence of Claimants' general partner, Howard Wilkov. The FINRA Arbitration Panel denied the motion.
The FINRA Arbitration Panel found Respondent Ameriprise liable and ordered it to pay to Claimant Family Partnership $500,000 in compensatory damages and to reimburse Claimant $1,300 for the FINRA filing fee.
New York State Court Complaint
Plaintiff Jennifer Wilkov filed a Complaint in New York State Court asserting breach of contract or unjust enrichment, and fraud against Defendant Ameriprise; and seeking a permanent injunction, mandamus, and/or other equitable relief against Defendant NYDA. Wilkov alleged that Ameriprise had failed to properly supervise her investment adctivities in violaton of their Franchise Agreement and that the firm deliberately concealed its breach. As to the NYDA, Plaintiff alleged that it had engaged in prosecutorial misconduct and she brought an equitable claim to re-open her criminal case. In part, Wilkov argued that Ameriprise employees had falsely represented to the Grand Jury that she had not informed Ameriprise about her CPM investment. Additionally, Wilkov alleged that an escrow balance of $21,528.36 exists from the civil forfeiture and has not been allocated or returned to her; however, she apparently stipulated to a discontinuance of that complaint.
October 2015: Removal to SDNY
In the Notice of
Removal, Ameriprise asserted that it and Defendant
NYDA had been improperly joined because Plaintiff had failed to state a cause of action against the latter party. Both Defendants moved to dismiss the Complaint and the Amended Complaint pursuant to
Federal Rule of Civil Procedure 12(b)(6) (failure to state a claim upon which relief can be granted). In deliberating over the pending motions, SDNY stated that:
The Court has carefully reviewed the submissions of all parties submitted in
connection with the instant motions, including Ameriprise's response to the Court's Order to
Show Cause and, for the following reasons, finds that the joinder of the DA to this action was
fraudulent and therefore does not defeat this Court's subject matter jurisdiction, and further
grants both Defendants' motions to dismiss.
Page 2 of SDNY Opinion and Order
In very workmanlike order, SDNY dismantles, piece by piece, Plaintiff Wilkov's allegations and assertions. Preliminarily, SDNY admonishes that:
The Office of the District Attorney is not an entity with a legal
existence that is capable of being sued, as distinct from the District Attorney himself.
Woodward v. Office of Dist. Att'y, 689 F. Supp. 2d 655, 658 (S.D.N.Y. 2010). That the DA is
"not an entity capable of being sued" is considerable evidence that Plaintiff could not state a
cause of action against the DA in state court. . .
Page 6 of SDNY Opinion and Order
Thereafter, SDNY notes that there is no cause of action under New York State law for an "injunction," and that Plaintiff had failed to state a prerequisite cause of action in connection with the requested injunction. Similarly, SDNY noted that mandamus relief is not available to acts involving the exercise of official discretion or judgment, such as the District Attorney's sole discretion as to whether to prosecute. More critically, since Plaintiff had pleaded guilty, that in and of itself had established "probable cause for prosecution."
In addressing the Motions to Dismiss, SDNY broke its analysis into several parts. As to Plaintiff's allegations of breach of contract/unjust enrichment against Ameriprise, the Court. SDNY noted that Plaintiff's claims were subject to a six-year statute of limitations under applicable Minnesota law as set forth in the Franchise Agreement, which ended in August 2005. As such, the six-year period ended in August 2011. SDNY declined to toll the period -- declining Plaintiff's arguments that there was fraudulent concealment:
[I]nsofar as her allegations relate to Ameriprise's treatment
of her (i.e., allegations that Ameriprise failed to supervise her adequately), Wilkov cannot
plausibly allege that she was unaware of her own treatment. That Ameriprise was found to be
liable at the FINRA hearing does not change this analysis. A breach of contract action is
premised on a contractual duty, and Wilkov does not state facts that make plausible her assertion
that Ameriprise affirmatively concealed the existence of its contractual duties or any relevant
facts . . .
Page 8 of the SDNY Opinion and Order
In similar fashion, SDNY dismissed Plaintiff's claim of unjust enrichment after finding that such was precluded by Agreement. As to Plaintiff's claims of fraud and fraudulent concealment against Ameriprise, SDNY deemed those to have been abandoned by Plaintiff and dismissed the claims.
Finally, SDNY tackles Plaintiff's claims against the DA of prosecutorial misconduct and improper disbursement of the escrow funds. The DA asserted that Plaintiff had waived her claims pursuant to her Stipulation of Discontinuance and had failed to timely file a Notice of Claim within 1 year and 90 days for claims against a NYC agency or employee. N.Y. Gen. Muni. L Sections 50-e and 50-i. As explained by the Court:
Plaintiff does not address these issues, asserting in her opposition papers only that she uncovered potentially exculpatory evidence (i.e., the record and results of the FINRA
proceeding) only after having filed a motion for relief from her conviction under New York
Criminal Procedure Law 440.10. As the DA notes in his reply submission, Wilkov is not
precluded from filing a subsequent 440.10 motion, and the dismissal of Count Four is without
prejudice to any such motion practice. (Docket entry no. 43, at 5.) Wilkov nonetheless has
failed to allege compliance with New York law in asserting her claim for money damages
against a City employee, to the extent she seeks to recover from the DA himself. Accordingly,
Count Four is also dismissed.
Pages 10- 11 of the SDNY Opinion and Order
2nd Circuit Appeal
In affirming SDNY's judgment, 2Cir concurred with the application of a six-year statute of limitations that rendered Plaintiff's breach of contract claims against Ameriprise as time barred when she filed her lawsuit in July 2015 -- a date some four years after the expiration. 2Cir declined to find that Ameriprise's alleged silence about the allegedly deficient oversight by Plaintiff's supervisor would justify tolling under the fraudulent concealment doctrine. Finally, 2Cir concurred that Plaintiff's guilty plea barred her claim for prosecutorial misconduct.