Sanft v. Jewelry Designer Showcase

Background

Neil Sanft and Madelyn Sanft sued Jewelry Designer Showcase, Inc. (JDS), Arthur D’Annunzio, and PPAD Inc. & Associates. After D’Annunzio died, Maria Montalbano, administrator of his estate, was substituted as a defendant. JDS filed for bankruptcy, and the case against JDS was stayed. No attorney had appeared for the Estate or PPAD, and neither defendant filed an answer. The Clerk entered a certificate of default against the Estate, after which the plaintiffs moved for default judgment. The plaintiffs alleged damages of $671,848.

Default-judgment standard

The court explained that default judgment may be entered only when the complaint’s factual allegations, accepted as true, establish the defendant’s legal liability. The court must still determine whether the allegations state a legally valid claim under the plausibility standard used for evaluating whether a complaint adequately pleads a claim.

Contract claims

The plaintiffs sought default judgment based on alleged breaches of share-redemption agreements under a Stock Subscription Agreement. The court found that the contract was between the plaintiffs and JDS. Because D’Annunzio and PPAD were not parties to the contract, they could not be held liable for its breach based only on the allegations presented. The plaintiffs alleged that D’Annunzio was a principal of JDS, but the court found that allegation insufficient. To hold D’Annunzio or PPAD liable for JDS’s conduct by disregarding the company’s separate legal existence, the plaintiffs needed to plead sufficient facts supporting that result. The court found that they had not done so.

Fraud allegations

The plaintiffs also alleged fraud in the inducement. They claimed that D’Annunzio conditioned payment under the share-redemption agreement on their hiring a new attorney and promised to pay for that attorney as an inducement. The court held that the alleged statement did not constitute fraud because the plaintiffs had already entered into the contract. Their argument that the statement caused them to wait longer before pursuing breach-of-contract claims did not establish a fraud claim or an entitlement to contract damages.

Federal Rule of Civil Procedure 9(b) requires fraud to be pleaded with particularity. The plaintiff must identify the allegedly fraudulent statements, their speaker, where and when they were made, and why they were fraudulent. The court found that the plaintiffs did not identify where or when the alleged statement was made and did not adequately explain why it was fraudulent.

Ruling

Judge Alvin K. Hellerstein denied the plaintiffs’ motion for default judgment. The court dismissed the claims against D’Annunzio and PPAD with leave to file a second amended complaint by November 21, 2025. The court also directed the plaintiffs by that date to advise whether they had filed a claim in JDS’s bankruptcy proceedings and, if so, why the case against JDS should not be dismissed. The Clerk was directed to terminate the motion at ECF No. 37.