1 18-1354 Fezzani v. Dwecke

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT



## SUMMARY ORDER

Rulings by summary order do not have prec edential effect. Citation to a summary order filed on or after January 1, 2007, is pe rmitted and is governed by Federal Rule of Appellate Procedure 32.1 and this Court’s Local Rule 32.1.1. When citing a summary order in a document filed with this Court, a party mu st cite either the Federal Appendix or an electronic database (with the notation “sum mary order”). A party citing a summary order must serve a copy of it on any party not represented by counsel.

At a stated term of the United States Court of Appeals fo r the Second Circuit, held at the Thurgood Marshall United States Courthouse , 40 Foley Square, in the City of New York, on the 13 th day of August, two thousand nineteen.

PRESENT: J OHN M. W ALKER , J R ., J OSÉ A. C ABRANES , P ETER W. H ALL , Circuit Judges.

M OHAMMED F EZZANI , C IRENACA F OUNDATION , V ICTORIA B LANK , L ESTER B LANK , J AMES B AILEY , J ANE B AILEY , B AYDEL L IMITED , M ARGRET B URGESS , P ATRICK B URGESSS , B OOTLESVILLE T RUST , A DAM C UNG , Plaintiffs-Appellants

,

v. 18-1354

I SAAC R. D WECK , I NDIVIDUALLY AND AS CUSTODIAN

FOR N ATHAN D WECK , B ARBARA D WECK , M ORRIS I. D WECK , R ALPH I. D WECK , M ORRIS W OLFSON , A ARON W OLFSON , A BRAHAM W OLFSON , J ACK D WECK , Defendants-Appellees

,

A NDREW B RESSMAN , B EAR S TEARNS & C O

. I NC ., A RTHUR B RESSMAN , B EAR S TEARNS S ECURITIES C ORPORATION , R ICHARD A COSTA , R ICHARD H ARRINGTON , G LENN O’H ARE , J OSEPH S CANNI , B RETT H IRSCH , G ARVEY F OX , M ATTHEW H IRSCH ,2 R ICHARD S IMONE , C HARLES P LAIA , A RIELLE W OLFSON J OHN M C A NDRIS , J ACK W OLYNEZ , T OVIE W OLFSON , R OBERT G ILBERT , A NDERER AND A SSOCIATES , F IRST H ANOVER S ECURITIES I NC ., B OSTON P ARTNERS , B ANQUE A UDI S UISSE G ENEVE , W OLFSON E QUITIES , F OZIE F ARKASH , T URNER S CHARER , R AWAI R AES , C HANA S ASHA F OUNDATION , B ASIL S HIBLAQ , U NITED C ONGRETION M ESARAH , I YAD S HIBLAQ , F AHNESTOCK & C OMPANY , I NC ., K EN S TOKES , B ARRY G RESSER , M ILLO D WECK , M ICHAEL R EITER , B EATRICE D WECK , A POLLO E QUITIES , R ICHRD D WECK , I SAAC B. D WECK , H ANK D WECK , D ONALD & C O ., Defendants

.

Appearing for Plaintiffs-Appellants : M AX F OLKENFLIK , Folkenflik & McGerity LLP, New York NY.

Appearing for Defendants-Appellees R OBERT A. H OROWITZ , Greenberg Traurig, LLP, New York, NY, for the Dweck Defendants

.

T ERENCE W. M C C ORMICK (Ira Lee Sorkin, on the brief ), Mintz & Gold LLP, New York, NY, for the Wolfson Defendants

. Appeal from a judgment of the United States District Court for the Southern District of New 1 York (Crotty, J. ). 2

UPON DUE CONSIDERATION WHEREO F, IT IS HEREBY ORDERED, 3 ADJUDGED, AND DECREED that the January 10, 2018 judgment is VACATED and the case is 4 REMANDED for further proceedings. 5

Plaintiffs-Appellants appeal the entry of summary judgment in favor of Defendants-Appellees. 6 On remand from this Court, see Fezzani v. Bear, Stearns & Co. , 716 F.3d 18 (2d Cir. 2013); Fezzani v. 7 Bear, Stearns & Co. , 527 F. App’x 89 (2d Cir. 2013) (summary order), the district court dismissed 8 Plaintiffs’ state-law claims of conspiracy to defr aud and aiding and abetting fraud for failure to 9 demonstrate damages. This appeal follows. We assume the parties’ familiarity with the underlying 10 facts, the procedural history of the case, and the issues on appeal. 11

“This litigation arises out of a fraudulent sche me engaged in by a now-defunct broker-dealer, 12 A.R. Baron (‘Baron’). Over the course of four years beginning in 1992, Baron defrauded customers 13 of millions of dollars. As a result, Baron’s former officers, directors, and key employees have been 143 convicted of various crimes.” Fezzani , 716 F.3d at 20. In the current action, Plaintiffs seek recovery 1 against Baron and its coconspirators. 2

The parties submitted on remand competing expert opinions regarding damages. Both 3 Plaintiffs’ and Defendants’ experts estimated aggreg ate losses of approximately $6.5 million for what 4 the district court termed “First Type Baron Securities,” i.e., shares that were held and traded only in 5 Baron accounts. App. 418, 451. The experts dive rged, however, on damages attributable to “Second 6 Type Baron Securities,” i.e., shares that had at some point been transferred from or to the same then7 stock holders’ third-party accounts. Defendants’ expert initially estimated aggregate losses of 8 approximately $3 million for Second Type Baron Securities using a “mark to market” approach 9 wherein the market values at the time s of transfer were used as proxies for the actual purchase or sale 10 prices of the shares. Defendants’ expert subseque ntly disclaimed any such estimate, however, opining 11 that “without trading records for the firms from wh ich shares were received or to which shares were 12 delivered, it is impossible to determine Plaintiffs’ net gains or losses with any degree of certainty.” 13 App. 451–52. Plaintiffs’ expert did not independen tly calculate damages attributable to Second Type 14 Baron Securities but nonetheless opined that the “mark to market” methodology was reasonable and 15 in line with “common industry practice.” App. 418–21. 16

The district court “accept[ed]” Defendants’ expe rt’s “opinion and analysis,” reasoning that 17 any estimate of the losses based on the Second Type Baron Securiti es must rely on the assumption 18 that “the third party brokerage firms must have op erated as mere repositories of Second Type Baron 19 Securities,” which “belies common experience” and, in any event, “cannot be verified without trading 20 records or monthly statements.” Sp. App. 10. Th e district court thus concluded that Plaintiffs had 21 failed to establish damages, an essential element of Plaintiffs’ claims. 1 Sp. App. 10. On de novo 22 review, see, e.g. , Munoz-Gonzalez v. D.L.C. Limousine Serv., Inc. , 904 F.3d 208, 212 (2d Cir. 2018), we 23 disagree. 24

Defendants’ theory is that Plaintiffs may have realized profits based on sales of Second Type 25 Baron Securities, which had been transferred to third-party accounts, and that such profits would have 26 been, according to Defendants, the result of a “single wrong,” which would decrease the net loss from 27 the fraud and potentially result in net profits. See Abrahamson v. Fleschner , 568 F.2d 862, 878 (2d Cir. 28 1977) (“This is not to say, however, that a plainti ff may recover for losses, but ignore his profits, where 29 both result from a single wrong.”). Although Abrahamson was based on federal law, New York law 30 appears to be similar. See, e.g.

, Chalom v. Liparelli , 236 A.D.2d 354, 356 (2d Dep’t 1997) (plaintiff could 31 not recover for fraud when he lost money from one part of transaction but gained from other parts, 32 resulting in a net profit from the entire fraudulent transaction); Majestic Export Co. v. Katz & Greenfield, 33 Inc. , 248 A.D. 205, 206 (1st Dep’t 1936) (plaintiff wa s not entitled to recover damages for fraud and 34

1 The district court also denied Plaintiffs’ motion for reconsideration, Sp. App. 16, but they present on appeal no challenges to that denial.4 deceit in inducing him to enter a c ontract because the transaction resulted in a net profit to plaintiff). 1 The district court made no ruling c oncerning whether potentially realized profits based on sales of 2 Second Type Baron Securities were in fact attributab le to Baron’s fraudulent scheme, and we conclude 3 that factual disputes with respect to this issue preclude summary judgment on the damages element 4 of Plaintiffs’ fraud claims. See id. (remanding for further considerat ion of what profits were properly 5 attributed to the underlying fraud); see also Minpeco, S.A. v. Conticommodity Servs., Inc. , 676 F. Supp. 486, 6 491 (S.D.N.Y. 1987) (concluding that unresolved factual questions on the same issue precluded 7 summary judgment). 8

More importantly, the district court’s and Defendants’ reliance on Celotex Corp. v. Catrett , 477 9 U.S. 317 (1986), is misplaced. To be sure, Plainti ffs’ evidence (or lack thereof) demonstrates potential 10 holes in their theory of damages, but Celotex requires Defendants to demonstrate “a complete failure 11 of proof concerning an essential element of [Plaintiffs’] case” sufficient to “necessarily render[] all 12 other facts immaterial.” See id. at 323. This they have not done. Celotex does not require Plaintiffs to 13 prove damages to survive summary judgment. See, e.g.

, Integrated Waste Servs., Inc. v. Akzo Nobel Salt, Inc.

, 14 113 F.3d 296, 302–03 (2d Cir. 1997 ) (concluding that defendant met “i ts burden of pointing to a gap 15 in plaintiff’s proof on a material issue” under Celotex , but holding that plaintiffs’ “poorly developed” 16 and “meager” record on damages was sufficient to preclude summary judgment and “permit them to 17 introduce more specific evidence at trial”). 18

Defendants alternatively argued for spoliation sa nctions based on Plainti ffs’ alleged failure to 19 preserve certain records, an issue not reached by the district court. While we take no position on this 20 issue, we note that the district court enjoys broad discretion to impose appropriate discovery sanctions, 21 including adverse-inference instructions, see generally Residential Funding Corp. v. DeGeorge Fin. Corp. , 306 22 F.3d 99, 106–10 (2d Cir. 2002), and the district co urt is free to consider such sanctions on remand. 23

We have considered parties’ remaining argument s and find them to be without merit. The 24 judgment of the district court is VACATED , and the case is REMANDED for further proceedings 25 consistent with this order. 26

27

FOR THE COURT: 28 Catherine O’Hagan Wolfe, Clerk of Court 29 30